Equity is equal to the formula. How to determine equity from the balance sheet? What are the features of accounting in a small enterprise?

An indicator through which you can easily determine all the assets of an enterprise, recorded without taking into account the obligations of the subject, is equity capital. It is quite remarkable that many experts in the field of economics associate this concept with net assets. By the way, this state of affairs is even described in some federal laws.

For example, the law “On Joint Stock Companies” states that instead of the net asset indicator of a banking organization, the amount of equity capital can be calculated. Moreover, the order issued by the agricultural department states that equity capital, as a certain difference between the obligations assumed by the company, as well as its own property, is in full accordance with the value of net assets or property.

Hence it turns out that concepts such as net assets and equity capital may well be interchangeable. But, in essence, they are the same category of economic concepts, which fully correspond to the volume of property owned by a particular enterprise, but minus its liabilities.

However, in economics there is a third concept, which includes equity capital. In accordance with this concept, equity can be understood as a list of the following indicators:

Capital (additional, authorized and reserve).
Shares of an enterprise purchased from shareholders.
That profit of the company that has not yet been distributed.
Non-current assets of the enterprise, or rather, their revaluation.

This concept is traditional, according to a huge number of experts in the field of economics. By the way, it is customary to use it not only on the territory of the Russian Federation, but also in many other countries of the world. Foreign economists very often use indicators similar to those listed in the balance sheet of the Russian Federation.

The method of this calculation depends on exactly what purpose is pursued for calculating net worth. At the same time, the management team of the company may receive instructions to use exclusively a specific method, thanks to which it is possible to actually calculate equity capital. Most often, such adjustments are made by investors or owners of the enterprise, who are able to make decisions regarding its future fate.

There are several methods by which you can determine the amount of equity:

Traditional formula.
Method of the Ministry of Finance.
According to the balance lines.

Own capital: traditional calculation formula

Thanks to the existing formula, you can quickly calculate the amount of equity capital. It should be noted that equity in this expression fully corresponds to line 1300 located in the balance sheet.

In this particular case, the formula looks like this:

Sk = page 1300

However, if we are talking about the very essence of equity capital, its definition as the net assets of an enterprise is somewhat different.

Finance department method

First, you need to agree that the net capital of an enterprise and its own capital are one and the same concept. Thanks to this, it is possible to determine the essence of this concept based on the criteria that are officially prescribed in the legal acts of the Russian Federation.

Following this method, in the structure of assets that is taken into account for the calculation, absolutely all assets must be present, minus those reflecting the debt on the part of the founders, as well as shareholders, in relation to their contributions to the authorized capital.

It should be noted that when following this method of calculation, liabilities must also be taken into account. However, in this case, income related to state assistance, as well as receiving property free of charge, is not taken into account.

Equity is understood as the totality of funds that the company has, or, more precisely, the funds that belong to the company’s participants. Equity capital represents the basic platform of the enterprise, on which the business is subsequently built. A higher indicator indicates that the company is stable and will look more attractive to investors. In this article we will look at how the value of equity capital is determined on the balance sheet.

What is a company's equity?

A company's equity includes the company's net assets that were originally invested by the founders, as well as retained earnings.

Equity on balance sheet

Important! A company's balance sheet has many different financial indicators that characterize the health of the business. One such indicator is the cost of equity capital.

There are several ways to determine equity, the main of which is based on the balance sheet. Based on the balance sheet data, the company’s equity capital corresponds to the balance of line 1300 “Total for Section III.” This indicator consists of the authorized capital, additional capital, reserve fund and retained earnings.

Quite often, equity is understood as the net assets of a company, the formation of which occurs on the basis of accounting data by subtracting assets (line 1600), liabilities of the company (line 1400, line 1500), debts of participants and adding future income. This method allows you to estimate the value of a business.

How to determine the value of equity on the balance sheet

Own capital consists of such liability items as:

page 1310: authorized capital, share capital, contributions of partners;
line 1350: additional capital;
p. 1360: reserve fund;
page 1730: retained earnings, etc.

The formula by which a company's own balance sheet is determined is quite simple.

Important! If the profit does not go to pay taxes and is not distributed among the company’s participants, then it remains at the disposal of the company and is reflected in account 84 “Retained earnings (uncovered loss).” Retained earnings can be spent solely at the discretion of the owners. It can be used for dividends or for increasing the authorized capital. Profits can also be used to cover last year's losses.

Thus, the value of equity in the balance sheet corresponds to the balance on line 1300, the total amount under Section III “Capital and Reserves”. The balance of “Capital and reserves” is determined as follows:

Page 1310 – Page 1320 + Page 1340 + Page 1350 + Page 1360 + Page 1370, Where

Page 1310 – “Authorized capital (share capital, contributions of partners, authorized capital)”;

Page 1320 – “Own shares purchased from shareholders”;

Page 1340 – “Revaluation of non-current assets”;

Page 1350 – “Additional capital”

Page 1360 – “Reserve capital”

Page 1370 – “Retained earnings (uncovered loss).”

An example of determining equity

authorized capital – 10,000 rubles;
retained earnings 500,000 rubles;
revaluation of non-current assets – 20,000 rubles;

The cost of equity will be:

10,000 + 20,000 + 500,000 = 530,000 rubles.

Components of a company's equity

The formation of the authorized capital occurs when the company is formed and it consists of contributions from the founders. The authorized capital is reflected in the balance sheet in accordance with the amount specified in the company's charter. It represents the contributions of the participants (shareholders, founders) of the company. The minimum amount of authorized capital for LLCs and non-public joint-stock companies is 10,000 rubles, for public joint-stock companies – 100,000 rubles. The authorized capital is contributed either in money or in non-monetary means, for example, property, property rights, securities. In this case, an independent assessment of the authorized capital is necessary. In the balance sheet, the authorized capital is indicated on line 1310.

The formation of additional capital occurs if the founders invest additional funds in the authorized capital, in excess of their own share. In addition, the formation of an additional fund is possible when receiving income from an issue, when directing funds from the revaluation of non-current assets, as well as from the profit remaining after its distribution. When revaluing non-current assets, in the event of the sale of shares or interests, receiving an amount in excess of the nominal value, the company receives gratuitous assistance as a contribution to the property. This is regarded as additional capital.

Reserve capital represents funds that a company sets aside to cover losses in the event of unforeseen situations. A reserve fund is created from profits to compensate for losses, including the need to pay off accounts receivable. For each individual doubtful debt, the amount of the reserve is determined. For joint-stock companies, a reserve is created without fail, and for an LLC this obligation is provided for in the charter. In the balance sheet, reserve capital is reflected on page 1360 “Reserve capital”.

Important! Retained earnings are the funds that remain from earnings after taxes and dividends have been paid. This line in the balance sheet also reflects the balances of special funds that are formed in the company.

At the expense of equity capital, dividends are paid to the company's participants. In case of termination of the company's activities, its own capital will determine the amount of funds that will be distributed among the company's participants. However, you should know that equity can be either positive or negative. This is possible if the company operates without profit and has a loss, and the accumulated amounts exceed other indicators of equity capital (authorized, additional and reserve).

If equity is calculated in order to determine the maximum amount of interest that is taken into account in expenses for controlled debt, then the amount of equity will be equal to the balance on line 1300 plus the debt for taxes and fees.

All sciences of economic development consider the organization's own capital as a component of the reproduction process. The authors of all theories recognize its decisive role in market relations. In this regard, not only general, but also specific issues of its use become relevant. Let us consider further in more detail what the equity capital of an enterprise is.

General information

The formation and improvement of the market system led to the emergence of various kinds of economic objects of analysis and accounting. One of them was the enterprise's own capital. Any company that operates separately from the rest, conducts production or other commercial activities, must have certain funds. Equity capital acts as the main source of financing for the functioning of the company.

Characteristic

Today, most businesses are owned by one or more entities. Maintaining documentation that confirms rights and various transactions acts as an accounting subject. Own capital is a set of funds that belong to the owner. They participate in the production process and bring income to the owner. The totality of funds includes sources of resources that differ in economic content, principles of use and formation. With a high proportion of equity capital in the liabilities side of the balance sheet, we can talk about the stability of the financial condition of the entity. For a company to grow, it needs sustainable equity capital. These funds act as a guarantee of the company’s survival in the market.

Classification

Shareholders' equity represents a company's assets minus its liabilities. In accounting it is divided into subclasses:

Structure

Own capital consists of investment and accumulated funds. The first represent contributions from the company's owners. They include the nominal price of preferred and common shares, as well as additional paid-in capital. Investment funds are presented in the balance sheet of a joint-stock company in two parts: additional and authorized capital. The accumulated fund is created over and above what was originally advanced by the owners.

Net worth: formula

The company's sources of funds include, among other things, raised funds. They include loans, borrowings and other debt - the company's obligations to other entities. Passive capital is represented by sources of property, including borrowed and own funds. Assets: the value of property by location and composition - everything that the company possesses, acting as a legal entity. Using these elements, you can create the following equation:

Sk + Fo = A, where

A – assets,

SK – equity capital,

Fo – financial obligations.

In some cases, Sk acts as a residual. In this case, it reflects all the funds that remain with the organization after repayment of obligations. Using the equation, you can determine your net worth. The formula will be as follows:

Sk = A - Fo.

Asset value

The size of Sk is not constant. The amount varies depending on the field of activity and development goals. The adjustment is carried out according to the conditions of profit maximization. The total value of the assets that a company manages is called its balance sheet value. Other concepts are also used:

Efficiency of using SK

In market conditions, analysis of the company's financial position is essential. This is due to the fact that firms gain independence and are fully responsible for the results of production and entrepreneurial activity to the owners and employees. In this regard, return on equity is an economic category that reflects the state of funds during their use. It shows the company's ability to develop itself at a particular moment.

Depending on the functional affiliation, a distinction is made between own working capital and fixed assets. The latter are a set of fixed assets, intangible assets and funds that do not have a specific purpose, but are used in production. Profitability, capital intensity, capital productivity are indicators on the basis of which a general characteristic of the efficiency of circulation of funds is formed.

Profitability

Return on equity is calculated by the ratio of net profit to the average annual value of invested assets. The cost of individual components (borrowed, operating and other funds) can be used as the latter. The main synthetic indicator is the equity ratio. It shows the amount of profit the company receives from every ruble invested in assets.

A general description of the intensity of use of fixed assets is given by the values of capital intensity and capital productivity. The last indicator determines the cost of one product per unit price of fixed capital. Capital intensity reflects the need for funds per unit of cost of the result.

Own working capital and the efficiency of its use deserve special attention. This is due to the fact that the rational implementation of these funds has an impact on increasing production volume, reducing the cost of goods, and increasing the profitability of the company. Assessing the efficiency of using working capital makes it possible to identify additional reserves and contribute to improving key economic indicators.

Velocity of Funds

The following elements are associated with it:

the minimum required amount of involved (advanced) capital and the payment of funds related to it (dividends, interest, etc.);
the need for additional revenue and payment for it;
the amount of costs associated with the possession of commodity material assets and their storage;
the amount of taxes and so on.

The shorter the turnover time, the more cycles the funds will make. The length of time assets remain in circulation is determined by the complex influence of internal and external factors of different directions. The economic situation in the state, as well as the economic conditions of the entities that are formed in a particular situation, are also of considerable importance. For example, due to inflationary processes and the lack of established relationships with customers and suppliers for most companies, a forced accumulation of inventories occurs. They, in turn, significantly slow down the turnover of funds.

Michael R. Lewis is a former corporate executive, entrepreneur and investment advisor from Texas. Worked in business and finance for over 40 years.

Number of sources used in this article: . You will find a list of them at the bottom of the page.

Equity is the company's assets that were acquired without the use of loans. For investors who buy shares and for financiers, equity is an important quantity. In accounting, equity is included in the basic equation of the double entry system: assets = liabilities + equity. Investors can quickly calculate a company's net worth, which will help them make the right investment decision. This article describes simple and effective methods for calculating a company's net worth.

Steps

Calculating net worth using the subtraction method

To use this method, you need to know the value of total assets and total liabilities. If a private company is being considered, it is difficult to do without insider information. But open joint stock companies (public companies) are required to disclose financial statements.

Find the value of total assets. It is equal to the sum of long-term assets and current assets. Assets are everything that a company owns, such as cash, land, and manufacturing equipment.
- Long-term assets are equipment, buildings and fixed assets, that is, any material assets (minus their depreciation) that operate for a long time (more than a year).
- Current assets are any accounts receivable, work in progress, inventory, and cash. In accounting, any asset that has been on a company's balance sheet for less than 12 months is a current asset.
- Separately add the values of the components of long-term and current assets to find the total values of these values. Then add the values you find to calculate your total assets.
- For example, the current assets of a certain company are equal to 535,000 rubles (135,000 rubles in the form of cash + 60,000 rubles in the form of short-term financial investments + 85,000 rubles in the form of accounts receivable + 225,000 rubles in the form of warehouse inventory + 30,000 rubles in the form of prepaid insurance), and long-term assets equal to 75,000 rubles (60,000 rubles in the form of shares + 15,000 rubles in the form of insured value). Add these values: 535,000 + 75,000 = 610,000 rubles - these are total assets.
Find the total amount of liabilities. To do this, add up long-term liabilities and short-term liabilities. Liabilities are the money a company pays to creditors, such as repaying bank loans and payables or paying dividends.
Calculate your net worth. To do this, subtract total liabilities from total assets. That is, you need to rewrite the basic accounting equation (see above): Equity = assets - liabilities.
- In our example, from the total assets of the company (610,000 rubles), subtract the total amount of liabilities (470,000 rubles) - equity will be 140,000 rubles.

Calculation of equity capital using the component method

Find out if you can use this method. To use this method, you must know the information reported in the equity section of the balance sheet or similar section of the general ledger. If a public company is being considered, the necessary financial documents can be found on its website. In the case of a private company, it is difficult to do without insider information.
- To find the public company information you need, search the Internet for its most recent financial report. As a rule, such a report is published on the company’s official website.

Equity on the balance sheet is a special section of the balance sheet that reflects the amount of capital less borrowed capital (company liabilities). That is, it is a combination of authorized, additional and reserve capital, as well as retained earnings and other reserves. In this article we will look in detail at what is included in equity on the balance sheet and how to calculate it.

Own capital is...

Capital (in the broad sense of the word) is everything that is capable of generating income, or resources created by people to produce goods, works and services.

Equity capital is the value of all funds of a legal entity that belong to it by right of ownership and are used to form assets. Equity capital consists of two main parts: capital that was invested by the founders when creating a business entity, i.e., invested capital, as well as capital that was created in excess of the initial one, i.e., accumulated. Accumulated capital is formed through the distribution of profits received as a result of the company's activities.

Thus, equity capital is the financial base on which the start of a business and all its further development are built. If at the end of the year the business entity receives a loss, then the amount of accumulated capital will decrease. Companies must constantly monitor the adequacy of their own capital and take measures to maintain and increase it.

What is the “Equity” line in the balance sheet and where is it located?

Let's figure it out, equity capital in the balance sheet - what line is this?

Equity capital (SC) is the part of the capital in the assets (A) of the company that remains after deducting its liabilities (Ab):

SK = A - Vol.

Next, let's find out where equity is located on the balance sheet. The forms of the balance sheet, as well as the report on financial results and other generally accepted forms of accounting are approved by Order of the Ministry of Finance of Russia dated July 2, 2010 No. 66n. According to Appendix 1 to this order, the company's equity capital is reflected in the balance sheet under code 1300 and consists of indicators on lines 1310-1370.

Thus, we have determined that “Equity” is line 1300 of the balance sheet, i.e., the total amount for section III of the liability side of the balance sheet “Capital and Reserves”.

What is included in equity on the balance sheet?

First of all, let's start with the authorized capital (p. 1310), which is formed by the founders when creating a legal entity. The authorized capital cannot be less than the amount established by law. Thus, the size of the authorized capital of an LLC must be at least 10 thousand rubles. (Article 14 of the Law “On Limited Liability Companies” dated 02/08/1998 No. 14-FZ). In other words, the authorized capital is the initial starting capital (share capital, authorized capital, contributions of partners) of the organization, necessary to ensure its activities and generate profits in the future.

The authorized capital can be increased or decreased by the decision of the founders with mandatory registration in the company’s statutory documents. The founders of a business entity make their contributions in cash, property, intangible assets, etc.

Own shares purchased from shareholders (page 1320) reduce the authorized capital. This line is filled out by JSC and LLC, indicating the amount in parentheses.

Page 1340 “Revaluation of non-current assets” reflects the results of the revaluation of fixed assets and intangible assets. This line is also included in equity.

Additional capital (p. 1350) is also part of the equity capital and, in addition, the property of the founders of the legal entity, not divided into shares. Additional capital reflects an increase in the value of property as a result of the revaluation of fixed assets and construction in progress. Also, additional capital is formed from property and/or cash received free of charge, and from the receipt of share premium.

Reserve capital (p. 1360) is created to minimize risks. Hence the name - reserve, i.e. it is a reserve just in case. Reserve funds are created voluntarily and are formed in the manner established by the constituent documents or accounting policies of the company, depending on the organizational and legal form of its ownership. Thus, Russian joint-stock companies form reserve capital in the amount provided for by the company’s charter, but not less than 5% of the amount of the authorized capital (Article 35 of the Law “On Joint-Stock Companies” dated December 26, 1995 No. 208-FZ). Information on the size of the authorized and reserve capital is documented in the company's charter.

Retained earnings from previous years and the reporting year (line 1370) are also included in the legal entity’s own capital (uncovered loss, in turn, reduces equity capital). These parts of capital are formed in accordance with legislation, constituent documents and accounting policies.

Line in the balance sheet “Own working capital”

Own working capital is a value that shows how much capital is in the company’s turnover, ensuring the continuity of its work. This indicator also determines the need to raise borrowed funds. This is a source of covering the company's working capital.

In the educational literature there are various algorithms for calculating the value of own working capital, among which the most often used indicator is the difference between the value of current assets and short-term liabilities.

Don't know your rights?

The formula for calculating own working capital is as follows:

JUICE = TA - TO,

SOK - own working capital;

TA - current assets (line 1200 of the balance sheet);

TO - current liabilities (line 1520 of the balance sheet).

How to calculate equity from the balance sheet?

To calculate equity capital, a simple traditional method is often used: the total of line 1300 of the balance sheet is taken.

Also, to calculate equity capital, its average annual value can be used:

SK = (SKng + SKkg) / 2,

SK - the size of the annual equity capital;

SKng - the amount of equity capital (line 1300 of the balance sheet) at the beginning of the year;

SKkg - the amount of equity capital at the end of the year.

The total of a company's assets minus its total liabilities is equity on the balance sheet. Often the concept of equity is used on a par with the concept of net assets. International Financial Reporting Standards designate equity capital as net assets (paragraphs 4.20-4.23 of the Conceptual Framework for Financial Reporting). We can say that net assets are a material base that, in the event of unfavorable conditions for a company, can be used to fulfill all its obligations and guarantee the protection of its interests.

Simply put, the net asset value indicator expresses the value of the company's assets that remain in the event of its liquidation or bankruptcy after fulfilling all its obligations. How to calculate net assets? This issue is especially relevant for joint stock companies. At the stage of company creation, its net assets are equal to the authorized capital. The universal formula for calculating net assets based on balance sheet data is as follows:

Net assets = Page 1600 - Debt of the founders as part of line 1230 +

Page 1530 - Page 1400 - Page 1500.

The formula for calculating net assets is established by law - by order of the Ministry of Finance dated August 28, 2014 No. 84n. According to this order, accounting items recorded on off-balance sheet accounts are not taken into account when determining the value of net assets.

The amount of net assets must always be greater than the authorized capital of the company. In this case, the company's activities are considered successful. The higher the net assets, the more profitable the company is. Accordingly, a negative net asset value indicates the insolvency of the company and/or its debts. At the end of each year, joint stock companies and limited liability companies compare the amount of net assets with the authorized capital. You can increase net assets by increasing the authorized, reserve or additional capital. It is also possible to revaluate fixed assets and intangible assets according to the rules set forth in PBU 6/01 “Accounting for fixed assets” (order of the Ministry of Finance of Russia dated March 30, 2001 No. 26n) and PBU 14/2007 “Accounting for intangible assets” (order of the Ministry of Finance of Russia dated December 27, 2007 No. 153n) respectively.

Equity assessment is a very important financial and analytical process. If the company has no debt to creditors, then the value of its assets will be equal to its equity capital.

***

Equity capital is the funds of a legal entity that are used to form a share of assets. This is the calling card of any company. Its value is used to judge the reliability and profitability of the company. We also answered the question, which line is equity capital in the balance sheet. We also looked at the formula for calculating net assets.