Equity – also known as equity or simply “equity” – is an important number for investors because it indicates the net worth of a business. That is, equity lets investors know how much they would receive (theoretically) if the company closed its business, sold its assets, and paid off its debts. So, can this number be found on a company’s income statement?
The short answer
Simply put, equity does not appear anywhere in the income statement. Companies publish three main financial statements, and each has its specific purpose.
- Income statement: As the name suggests, the income statement displays calculations of several different income figures (gross income, interest income, net income, etc.), and also displays information such as dividends and earnings per share. .
- Balance sheet: This is where you will find the equity. A balance sheet shows the economic principle that a company’s assets are equal to its liabilities plus its equity.
- Cash Flow : This shows the flow of money in and out of the business, and shows the change in the cash flow of the business from period to period.
Although equity does not appear directly in the income statement, information appearing in the income statement has a significant impact on equity. Specifically, any net income generated by a business that is not paid out as dividends is used to increase equity. On the contrary, if a company’s bottom line is negative, it can reduce the company’s equity.
Where to find equity and what you are looking for
As I mentioned, you can find equity on the balance sheet, usually down. Just to give you an idea of what to look for, here is the equity portion of Wal-Mart2015 review.
As you can see, there are several components to equity. This includes:
- Par value of the company’s shares.
- Paid-up capital (when the shares were originally purchased from the company).
- Retained earnings – that is, money the company has earned throughout its history that has not been paid out as dividends.
Some companies may also list the paid-up capital of preferred shares (if any), as well as shares held in company treasury, which are subtracted from equity.
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