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Shareholders Equity Statement | Definition | Components - YouTube
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friends today we're going to learn a
concept which is your shareholders
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equity statement one of the most
important statement which every
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stakeholder an investor would like to
take a look upon over here it says that
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Toshiba says it expects to book a $71.25
2.5 dollar sorry its yen right
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down in its nuclear power business
that's one of his segments sitting cost
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overruns at the US unit diminishing the
prospects for its atomic energy
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operations and this is the person who
will be stepping down as the chairman of
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the conglomerate because it's operating
in a different segment altogether
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there's also a detail that has been
given over here that more than who you
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as $7 billion in market value as a result
of the losses and shareholders equity
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will drop to negative $150 billion and
for the current year ending 1 March this
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particular your so toshiba is over
here writing now it's writing down its
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investment by $8.3 billion in the nuclear power business in US and
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this will result in wiping out the
entire total shareholders equity of
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Toshiba Co obviously this is a negative
as you know the shares declined led to
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an erosion of more than closely to $7
billion in Market Market bus so
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shareholders equity is the interest of
the shareholders in the net assets In the
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repeat shareholders is the equity is
the interest in the shareholder in the
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net assets of the company so it is one
of the most important aspect of the
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balance sheet and there are so many
other components which we need to take
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into account under the shareholders
equity so in this tutorial we'll learn
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the nitty-gritty of the shareholders
equity we'll start with what is exactly
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the shareholders equity we'll start with
what over here as the first three
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shareholders equity is the interest as I
told you of the shareholder in the net
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assets of the company you may wonder why
and I'll tell you the why the assets of
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the company they are either financed by
the creditors or brought in by the
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shareholders are the two sources
right now the creditors will be entitled
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to get paid till the extent they have
contributed towards the financing the
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assets and the rest will be enjoyed by
the shareholders so shareholders are
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valued more because the
share both the profits and the losses
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now imagine that you know you have
invested into a business now you would
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expect a mere return from the investment
if not more than your opportunity cost
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and that business does not yield any
profit so insert it incur losses so as a
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result you will get you will not get
actually any sort of return return
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so whenever a shareholder invests into a
business he takes risks of both the
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profit and the loss in two account now
that's why these shareholders are valued
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or most in the business and that's the
reason the maximization of the wealth of
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the shareholders is one of the prime
Gold maximization of shareholders wealth
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now we can express the assets in the
equation like this assets is equal to
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your liabilities plus the shareholders
equity this is the equation by which you
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can go by if we can interchange the
equation a bit we will get the
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definition of the shareholders equity in
the formula is something like this
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assets minus the liabilities will be
equal to your shareholders equity so the
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residual interest that is a difference
between the assets minus liabilities is
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called the capital and in sole
proprietorship business and the same is
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actually called as the sum of the
individual capital it is called as the
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sum of the individual capital in the
partnership business now there are some
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of the components of shareholders equity
now the first and the foremost component
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that will go by let's start with the
component the component over here for
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the first in the foremost is going to be
the common stock common stock see common
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stock is the first in the most important
component the shareholders equity common
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stockholders basically are the owners of
the Khumbu they are the ones who will
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receive the profits and deal with the
losses after the company pays interest
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and dividends to the preference holder
so and then they will also get the most
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important the voting rights
that's what they get common stock if you
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want to find then you can do it by
common stock is equal to the number of
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shares issue into the par value for
share there are two things that needs to
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consider here the number of the number
of the number authorized share capital
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and the number of shares that I visit
that have been issued so the number of
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the authorized share capital represents
in say the company can issue legally the
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shares the company can issue legally and
the number of shares issued means the
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actual number of shares that have been
company has issued so this is basically
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legally and this is actually got it this
was the first part I'll say the first
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part then let's see the second component
which is the additional it is the
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additional paid up capital now
additional means more than the share
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price so that means that when the
company receives a premium on the shares
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we would call it additional paid of cap
now additional paid up capital is
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basically your share price less the
par value into the number of shares
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issued well the share price minus the
par value will come in one single
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bracket this whole thing should come in
once in bracket third is the preferred
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stock well the preferred stockholders
are the stockholders will have these
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equity rights and in that assets and
they don't have to they don't have any
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sort of voting rights but they enjoy a
fixed dividend even before anything is
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given to the common stockholders so
again the preferred stockholders have
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been calculated as PS is equal to your
number of preference shares into the par
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value of shares actually par value per
share the fourth part is your retained
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earnings
well retain earnings are the losses
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earnings or losses there are accumulated
from the previous period in simple terms
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you can call retain earnings are the
among the company keeps after paying the
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dividend from the net income so this
amount is reinvested into the cup
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now not only that the retain earnings
include your net income less any
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dividends paid and add or less any
changes in the accounting policies that
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will give you the retained earnings at the
end of the period the fifth is the
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Treasury shares this are all the
component the component you should know
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it Treasury shares is the sum of all the
common shares that have been purchased
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back by the company treasury shares are
the opposite of the common equity shares
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and the common stock has a credit balance you know whereas treasury shares have a
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debit balance the sixth part which is
your accumulated other comprehensive
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income now when we talk about this
accumulated other comprehensive income
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contains the unrealized gains or losses
that do not flow through the net income
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statement and examples are like an
unrealized gains or losses from the
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investments there are classified you
know as available for sale or foreign
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currency translate a translation pension
plan and so on and so forth so this is
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were the part and parcel of the
shareholders equity well on the this for
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the components now I want to make you
understand what are the reasons for the
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negative version is equity seen some of
the company you will find these
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shareholders equity is negative now why
is that so see there can be many reasons
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the first can be buyback of shares that
can be the one reason see that this is
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one of the most common reasons why sure
is I could eat are negative now if the
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company buy back shares these
shareholders equity portion gets reduced
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by the amount so that is one of the
reason second is writedowns now what is
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right downs
see writedowns could be another reason
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that can lead to the negative
shareholders equity most recent example
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is of toshiba which we learn invested
heavily in the u.s. nuclear power
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business and they realize that it will
that it will it will not give actually
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it will not give the returns as the
expected earlier and they took a write
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down of whooping $8.30 billion in the businesses so currently
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Toshiba shareholders equity is standing
at two point nine two billion with the
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huge right down so Toshiba shareholders
equity will turn negative in that
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particular scenario so that's it for
this particular topic if you have
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