Shareholders Equity Flashcards
What is shareholder’s equity
This is the corporation’s owners residual claim on assets after debts have been paid.
Equity is equal to a firm’s total assets minus its total liabilities.
What is Retained earnings
This is part of shareholder’s equity and is the percentage of net earnings that were not paid to shareholders as dividends.
What is the formula for shareholder’s equity
Total assets - total liabilities
What are treasury shares
These are shares that are owned by the company itself
What does a positive/negative shareholder’s equity tell you
Positive = company has enough assets to cover its liabilities
Negative = the liabilities outweigh the assets, which is cooked
What are current assets
Assets that can be converted into cash within a year
What are current liabilities
Debts typically due for repayment within one year
What does the Return on Equity ratio tell you and how is it calculated
Net income/Shareholder equity
This shows how well a company’s management is using its equity from investors to generate profit
How can you use Shareholders equity to compare 2 companies
Look at how the shareholders equity increases/decreases year over year and compare with other companies.
If one companies is growing faster/falling slower then it has a better handle on its debt
