Book Value of Equity
The book value of equity will change in the case of the following events :
# Changes in assets relative to liabilities. For example, a profitable firm receives more cash for its products than the cost at which it produced these goods, and so in the act of making a profit, increases its retained earnings, therefore its shareholders’ equity.
# Issue of new equity in which the firm obtains new capital increases the total shareholders’ equity.
# Share repurchases, in which a firm returns money to investors, reducing on the asset side its financial assets, and on the liability side the shareholders’ equity. For practical purposes (except for its tax consequences), share repurchasing is similar to a dividend payment. Rather than giving money to all shareholders immediately in the form of a dividend payment, a share repurchase reduces the number of shares outstanding.
#Dividends paid out to preferred stock owners are considered an expense to be subtracted from net income(from the point of view of the common share owners).
# Other reasons – Assets and liabilities can change without any effect being measured in the Income Statement under certain circumstances; for example, changes in accounting rules may be applied retroactively. Sometimes assets bought and held in other countries get translated back into the reporting currency at different exchange rates, resulting in a changed value.
Book Value of Equity <