stockholders' equity: meaning, definition, pronunciation and examples
C1/C2Formal / Technical
Quick answer
What does “stockholders' equity” mean?
The remaining interest in a company's assets after deducting its liabilities.
Audio
Pronunciation
Definition
Meaning and Definition
The remaining interest in a company's assets after deducting its liabilities; the owners' claim on the company's assets.
Also known as shareholders' equity, it represents the net worth of a company from an accounting perspective, calculated as total assets minus total liabilities. It includes common stock, retained earnings, and additional paid-in capital.
Dialectal Variation
British vs American Usage
Differences
UK: 'shareholders' equity' is overwhelmingly preferred. US: 'stockholders' equity' is standard in accounting and corporate contexts.
Connotations
Both terms are purely technical with identical meanings. 'Stockholders' equity' is a formal US accounting term; 'shareholders' funds' is a common UK alternative.
Frequency
In the US, 'stockholders' equity' is high-frequency in financial reporting and textbooks. In the UK, the term is rarely used; 'shareholders' equity' or 'share capital and reserves' dominates.
Grammar
How to Use “stockholders' equity” in a Sentence
The company reported [AMOUNT] in stockholders' equity.Stockholders' equity is calculated as assets minus liabilities.An increase in retained earnings boosts stockholders' equity.Vocabulary
Collocations
Examples
Examples of “stockholders' equity” in a Sentence
verb
British English
- The directors aim to equity-finance the expansion.
American English
- The company decided to equity-finance the acquisition.
adjective
British English
- The shareholders' equity account showed a surplus.
American English
- The stockholders' equity figure was audited.
Usage
Meaning in Context
Business
The board reviewed the statement of stockholders' equity to assess the firm's financial health.
Academic
The study examined the correlation between R&D expenditure and subsequent growth in stockholders' equity.
Everyday
Rarely used in casual conversation. Might be paraphrased as 'what the company is actually worth to its owners'.
Technical
On the balance sheet, permanent accounts contributing to stockholders' equity include common stock, paid-in capital in excess of par, and retained earnings.
Watch out
Common Mistakes When Using “stockholders' equity”
- Using a plural verb (e.g., 'Stockholders' equity are...'). It is singular: 'Stockholders' equity is...'.
- Confusing it with 'market capitalization', which is based on share price, not book value.
- Misspelling as 'stockholder's equity' (singular possessive). The standard is the plural possessive: 'stockholders' equity'.
FAQ
Frequently Asked Questions
Yes, they are synonyms. 'Stockholders' equity' is the preferred term in US accounting, while 'shareholders' equity' is more common internationally.
Yes. Negative stockholders' equity (often called a 'shareholder deficit') occurs when a company's total liabilities exceed its total assets, indicating severe financial distress.
It is presented on the company's balance sheet (or statement of financial position), specifically in the 'Equity' section, which is below the liabilities section.
Stockholders' equity is a book value from the balance sheet (assets - liabilities). Market capitalization is a market value calculated as (current share price x total shares outstanding). They are rarely the same.
The remaining interest in a company's assets after deducting its liabilities.
Stockholders' equity is usually formal / technical in register.
Stockholders' equity: in British English it is pronounced /ˈstɒkˌhəʊldəz ˈɛkwɪti/, and in American English it is pronounced /ˈstɑːkˌhoʊldɚz ˈɛkwɪti/. Tap the audio buttons above to hear it.
Phrases
Idioms & Phrases
- “Return on equity (ROE)”
- “Equity financing”
Learning
Memory Aids
Mnemonic
Think of a house: if the house (assets) is worth £300,000 and you have a mortgage (liability) of £200,000, your equity is £100,000. A company's stockholders' equity is the same concept.
Conceptual Metaphor
OWNERSHIP IS A RESIDUAL CLAIM. (The owners get what's left after all other claims are settled.)
Practice
Quiz
Which of the following is a direct component of stockholders' equity?