A company’s balance sheet reflects its financial position for a specific accounting period and itemizes its assets and liabilities, as well as its shareholder equity. Also called capital or net worth, shareholder equity is the money that would remain if a company sold all of its assets and paid off all of its liabilities, according to the Securities and Exchange Commission. To calculate shareholder equity, dividends and stock buybacks, as well as liabilities such as accounts payable, wages, taxes and debt are all itemized on a company’s balance sheet and must be subtracted from assets such as cash, inventory and supplies.
Total the company’s assets, which are found on the left side of the balance sheet. The balance sheet includes values for current assets, investments, property and intangible assets – such as trade names – as well as their corresponding total value for the time period the balance sheet reflects. Balance sheet values for a company’s physical assets – such as office space – reflect the assets’ book value, according to the website Accounting Coach, which is their original value after depreciation.
Total the company’s liabilities, which are listed on the right side of the balance sheet. Liabilities are anything for which the company owes money, according to Dun and Bradstreet, and fall into two categories: current and long-term liabilities. Current liabilities must be paid off in one year; if a liability takes more than one year to pay off – such as a mortgage – it is long-term.
Double-check all of your information and calculations, then record every value using a computer spreadsheet. Consult any notes or legal or supporting documents for the balance sheet; these documents will detail any potential assets or liabilities that are not itemized on the balance sheet as of yet. These notes are typically between 10 and 20 pages long, according to the website Accounting Coach, and are a part of the company’s annual report to the SEC.
Total the amount of money the company has paid to shareholders as dividends and stock buybacks, which will be recorded in the company’s general ledger. Add the sum of money the company paid to stockholders and its liabilities, then subtract that amount from its total assets to arrive at its retained earnings. The Motley Fool website characterizes retained earnings as the amount of capital a company has generated for the time period, or its shareholder equity.
Ben Taylor has been writing since 2005 and has had work published by WEKU-FM and West Virginia Public Broadcasting both on air and online. Taylor holds a Master of Arts in English from Eastern Kentucky University and currently teaches composition and ESL there.