Shareholders’ Equity

The shareholders’ equity is the book value of the company. This is found on the balance sheet of the company. If the company is loss making, it is possible that the company owes more than it owns, that is, its liabilities exceed its assets. In a situation as such, it is possible to have a negative value on shareholders’ equity.

For a company to be a going concern, its balance sheet must be strong.

General

In general, a growing book value over time means that the company has been creating value for its shareholders. A decreasing book value over time means that the company has been destroying value for its shareholders.

One example where a company destroys value is where a company incurs losses on its operations over a number of years. In this case, book value may decrease over time. If this continues, the company may have to file for bankruptcy sometime in the future if it is not able to meet its obligations.

Read: Total Assets

Book Value Of Equity Per Share

The Balance Sheet