Some concepts are not clear to me. When we speak about equity it is defined as “owner’s residual claim on company’s assets after subtracting its liabilities.” Now,
When we speak about shares as a part of equity it seems that only thing that is important is percentage of somebody’s ownership of the company that is his share in the company’s ownership. John has 20% and Caius 22% of shares while absolute value is not so important.
Because Retained Earnings are only part of Equity and not added to shares to increase their value, right ?
Say John has bought 20% of shares that is 20 shares of total of 100 and each costs $10. After the first year Retained earnings are $1000. So it is added as a part of EQUITY and not to increase the common stock value while retaining percentage of each owner.
So also the value of each stock is decided on market and by the book ?
When shares are issued, then it is reported as Equity share capital( issued) which is given as No: of Shares issued * Face value. Retained earnings are part of reserve and surplus and will not affect ESC. ESC will only change if event has anything to do with shares(i.e change in outstanding no of shares or face value of shares… latter happens when firm goes under capital restructuring). For Ex… issue of bonus shares. Stock splits/dividend will increase ESC. Buy back will decrease ESC.
ESC shows the issued capital of the company… Owner’s equity is sum of ESC, PSC, Non controlling interest, retained earnings and accumulated other comprehensive income