Found on a company's balance sheet, stockholders' equity (also called shareholders' equity) is a measure of how much a firm's operations are funded through common stock, preferred stock and retained earnings. This equity value is comprised of the funds originally invested in the company, as well as subsequent investments.
General investors in a company purchase shares of common stock, which usually entitles them to dividends and voting rights. The amount reflected for this line item is the par value of each share of common stock, with funds in excess of this amount being reflected as a capital surplus line item.
Additional Paid In Capital
Also referred to as capital surplus, this is the amount of funds invested in the company by common stockholders that exceeds the stock's par value.
Preferred stock is similar to common stock in that it provides ownership of a company through shares; however, preferred stock has both debt-like and equity-like properties. It is debt-like because preferred stockholders are sometimes guaranteed fixed dividends on a regular basis, and is equity-like because stockholders can earn increased returns on their investment through stock price increases.
Treasury stock are common shares of a company that are not issued to the general public for sale, as well as any common shares that have been purchased by the company during a share buyback. At times, a company may wish to use excess cash to purchase its own shares in the open market through a share buyback, effectively raising earnings per share for shareholders.
Retained earnings is the amount of net income that is not paid out as dividends, and is reinvested in the company. This money is used to finance expansions, improve business processes, and for anything else that the company feels will boost its value and return for stockholders.
Christopher Rosenbaum began writing a blog in 2008 for two newspapers, "The Independent" and the "Cedar Rapids Gazette." This blog was also published in Major League Baseball's MLBlogs.com. Rosenbaum earned his Master of Business Administration in management information systems and his Bachelor of Science in finance from The University of Tampa.