How to Reformulate a Statement of Shareholders' Equity
The statement of shareholders' equity is a section on a balance sheet that includes the share capital of the company and the retained earnings — net income after dividend payments. Shareholders' equity is effectively the net worth of a company because it is the difference between assets and liabilities. A reformulated statement of shareholders' equity reorganizes the items to identify beginning and ending balances, the transactions with common stockholders and the income available to common stockholders.
Get the beginning shareholders’ equity balance for the period. Exclude preferred stocks from the calculations because reformulations are done for common stockholders' equity only. Preferred stock is considered a liability for reformulation purposes.
Record the transactions with shareholders. These include dividends paid to common stockholders, net proceeds from issuing common stock and share repurchases. For example, if a company paid $1 million in dividends, repurchased shares worth $2 million and issued shares for net proceeds of $5 million, the total transaction with shareholders for the period is $2 million (5 million - 2 million - 1 million).
Find the total income available to common stockholders. This equals the net earnings for the period — net income minus preferred dividends — plus other comprehensive income, which includes foreign exchange transaction gains or losses. Continuing with the example, if net income for the period is $1 million, no preferred dividends are paid and there is a $500,000 foreign exchange gain, the total income available to common stockholders for the period is $1.5 million (1 million + 0.5 million).
Calculate the ending shareholders’ equity balance for the period. Add the beginning balance to the transactions with common stockholders and the total income available to common stockholders. To conclude the example, assuming a beginning balance of $2.5 million, the ending balance is $6 million (2.5 million + 2 million + 1.5 million).