What is shareholder equity (SE)?

Shareholder equity (SE), also known as stockholders’ equity, is the net worth of the company that belongs to its shareholders. It reflects the residual value of the company’s assets after all liabilities have been settled. 

Shareholder equity is comprised of several key elements:

• Paid-in capital: total amount of money shareholders have invested in the company by purchasing stock
• Retained earnings: accumulated profits of the company that have been reinvested in the business

NOTE
It’s important to distinguish between shareholder equity and market value. Shareholder equity represents the accounting value of the company, while market value refers to the total market capitalization of a publicly traded company’s outstanding shares.

Frequently asked questions

Does shareholder equity change over time?

Shareholder equity can change over time depending on a company’s financial performance.

It typically increases when a company generates profits or issues new stock. It can decrease if a company incurs losses or distributes dividends to shareholders.

Can shareholder equity be negative?

Yes, shareholder equity can be negative, particularly for companies in their early stages or those facing significant financial challenges.

A negative shareholder equity signifies that the company’s liabilities exceed its assets.