When the owners are shareholders, the interest can be called shareholders’ equity; the accounting remains the same, and it is ownership equity spread out among shareholders. If all shareholders are in one and the same class, they share equally in ownership equity from all perspectives. However, shareholders may allow different priority ranking among themselves by the use of share classes and options. This complicates both analysis for stock valuation and accounting.
The individual investor is interested not only in the total changes to equity, but also in the increase / decrease in the value of his own personal share of the equity. This reconciliation of equity should be done both in total and on a per share basis.
- Equity (beg. of year)
- + net income inter net money you gained
- − dividends how much money you gained or lost so far
- +/− gain/loss from changes to the number of shares outstanding.more or less
- = Equity (end of year) if you get more money during the year or less or not anything.
Market value of shares
In the stock market, market price per share does not correspond to the equity per share calculated in the accounting statements. Stock valuations, which are often much higher, are based on other considerations related to the business’ operating cash flow, profits and future prospects; some factors are derived from the accounting statements.
Equity in real estate
The notion of equity with respect to real estate comes the equity of redemption. This equity is a property right valued at the difference between the market price of the property and the amount of any mortgage or other encumbrance.