The stockholders' equity is the difference found between the active and the passive of a certain company. It is usually the reflection of the investments of those who own the organization, therefore, the owners of this heritage are understood as the shareholders or partners of the company.
Due to this, this capital can be known in accounting also as net capital, liquid capital, own capital or equity. On some occasions it could be confused with working capital, which consists of the provision of the resources that a company has so that it can operate.
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In the same way, it may happen that a company may have a large stockholders' equity, however, you may not have the liquidity so you can operate. This situation is due to the fact that the entity's asset accounts tend to be mostly fixed or there is no adequate asset rotation.
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In this article you will find:
Elements of Stockholders' Equity
Within business, the use of accounting is essential. Its validity is not only focused on the interpretation of financial and economic information, currently it must be used in a mandatory way so that obligations are fulfilled fiscal and also for the presentation of financial reports to the various public and private entities that show interest in knowing what the financial situation of the company is. business.
This heritage makes up certain accounting principles that are mostly accepted and can be determined by the differences that exist between the total assets of the organization, less the total liabilities.
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The result does not by itself express a reasonable proportion, but it is a key reference that the employer will have to know how to interpret appropriately. Next, the main elements that make up stockholders' equity:
Social capital
It includes the participation of the shares of the partners, which can contain a fixed and a variable part.
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Results of past exercises
It is the sum of the profits and losses that the organization has accumulated and the pending payments that must be paid to the partners on a certain date.
Legal reserve
The integration of a capital reserve is mainly mandatory to facilitate the confrontation with possible contingencies in the organization.
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Result of the excersice
It is based on the accounting profit or loss for the current period, which must be consistent with the result recorded in the statement of profit or loss.
Updating of non-monetary assets
They can arise from the revaluation of fixed assets and similar items that contain a counterpart that has stockholders' equity.
Reserve for reinvestment
Mostly it should not be mandatory, however, certain companies incorporate it as part of their growth policy business and that is why it is used to invest in new technologies or also to replace assets productive.
Classification of Stockholders' Equity
East type of capital It is classified as follows:
Contributed capital
They are the contributions that are generated by the owners and by the donations received from the entity.
Social capital
It is found within the contributed capital, this refers to the group of all the contributions of the shareholders that are considered within the articles of incorporation and in the same way in their reforms. In turn, this type of capital is made up of the following:
1. Authorized capital not issued
It is made up of the difference between the capital of the company that is authorized in the deeds and the amount that is under subscription. This difference may or may not be subscribed, this will depend on the vision of the financial statements, since they do not belong to the stockholders' equity, but if they are an information element.
2. Issued capital not subscribed
It is represented by the part of the capital that is issued in the minutes of the shareholders' meeting, it is the part of the capital stock that is not part of the elements of stockholders' equity from the financial point of view, however, if from the informational point of view.
3. Subscribed capital
It is the part that represents the capital issued by shareholders, committed to displaying it. In this case the financial statements are usually part of stockholders' equity.
4. Subscribed and not exhibited capital
It is part of the representation of the capital subscribed by the shareholders or partners, where the exhibition is pending receipt and is represented by the status of financial substitution that minimizes capital subscribed.
5. Capital exhibited
Identify the amount that shareholders have already exhibited or contributed effectively.
Earned capital
Indicates the results of the entity's activities and of other events that could affect the adjustments for recovery of price changes that must be recognized.
Importance of Stockholders' Equity
The stockholders' equity that is properly determined, is a very important tool for investors, since they can count on a solid basis to establish the book value of the shares, the proportion of it that is linked to the total assets and to determine the level of production generated by the investment of the shareholders as part of a supposed evaluation financial
If, on the contrary, the capital is negatively determined, an unfavorable situation could be generated for the company. With certain legal variations that oscillate between half and two thirds of the capital stock that is lost.
It is possible to consider that the company is technically bankrupt, being probable its dissolution due to the legal demand of the affected parties, such as the state, suppliers or employees.
It can come to reflect the financial well-being or discomfort of a company, therefore, its proper interpretation should only not be considered important for external users who are interested in having knowledge on the financial situation, but also for union workers, administrative employees, partners who must be aware of the scope of their importance.
