investors must know about shareholders equity

 Share-holders fund

The share-holders equity is the company owner's financed amount which is typically shown in the Balance sheet. Generally, the balance sheet is divided into three sections: Assets, liabilities, and cash flow statements. Here, we are going to see how share-holders funds are calculated and it's important for common stock investors. 

Shareholders fund + liabilities = Assets.

Share-holders fund list items include par value, treasury shares, and reserved and surplus. Par value is the face value of stocks. A company when publishing the equity to the public the stock price value is exceeded than par value. Which excess amount is called a stock premium.  

Public issue = face value + stock premium.

SHAREHOLDER'S FUNDS
Equity Share Capital	13.18	13.18	13.18	13.18	13.18
TOTAL SHARE CAPITAL	13.18	13.18	13.18	13.18	13.18
Reserves and Surplus	1,847.30	1,962.53	1,921.69	1,785.61	1,652.23
TOTAL RESERVES AND SURPLUS	1,847.30	1,962.53	1,921.69	1,785.61	1,652.23
TOTAL SHAREHOLDERS FUNDS	1,860.48	1,975.71	1,934.87	1,798.79	1,665.41

In the first line item is financed par value amount The second line item . stock premium amount will be added into paid-in capital. Third item is reserve and surplus which amount derive from net profit after paid off dividend. If a company buys back their share from the market, the amount spent will be subtracted from the share-holders fund. 

Retained earnings

The income statement represents sales & profit. After paid-off all bills, the remaining amount is called net profit. This net profit will be added into the equity fund. If a company retain more profits themselves the equity value would increase. Perhaps, a company reinvest their profits or pay more dividends to investors, so share-holders return may decrease. 

Net profit - dividend = retained earnings

 

Equity capital (par value)

Paid-in capital (premium)

Retained earnings 

Total shareholders fund

Why is it important?

In the investor perception sales and profits are more important however, as shareholders view the equity return will inspire because the shareholders will see how much return has come from their equity return. 

You may notice some companies' sales growth might be very low though this stock attracts investors due to high equity return. For example, most of the IT companies' sales growth rate are being moderate even though stock prices ever go higher because of high equity return. On the other hand some companies  subsequently post  better sales growth but investors would not be interested in those stocks. Many reasons behind that, lower equity return may also be an important reason.