Understanding Shareholders' Equity
Shareholders' equity appears on a company's balance sheet -- a financial statement that summarizes the company's financial position as of a given date, typically the end of a fiscal quarter or year. Shareholders' equity and net worth both can be calculated by subtracting a company's total liabilities from its total assets.
Shareholders' equity also is calculated by taking the sum of the par value of common and preferred shares issued and outstanding, additional paid-in capital, and retained earnings. Additional paid-in capital refers to the proceeds from a stock issuance in excess of the stock's par value, which is an arbitrarily set figure with little significance. Retained earnings is equal to the cumulative net income a company has earned throughout its operating history less any payments for dividends made to shareholders.