Shareholders' equity is the portion of a company's assets that are owned by its shareholders. It represents the residual value of the company after all of its liabilities have been paid.
Shareholders' equity is typically divided into two main categories:
- Capital stock: This includes the company's issued and outstanding common and preferred stock.
- Retained earnings: This is the portion of a company's profits that have been retained and not distributed to shareholders as dividends. It represents the accumulation of the company's profits over time that have been reinvested in the business.
Shareholders' equity is an important measure of a company's financial health, as it represents the funds that are available to the company to finance its operations and growth. It is typically reported on a company's balance sheet, along with its assets and liabilities.
Shareholders' equity can be increased through the issuance of new stock or the retention of profits, and it can be decreased through the payment of dividends or the incurrence of losses. A company with a high level of shareholders' equity is generally considered to be financially stable and able to weather economic downturns or other challenges.