Thursday, May 24, 2012

What is difference between owner's equity and stockholder's equity?

In accounting terms, is there any meaningful distinction between owner's equity and stockholder's equity?

Common equity is the outstanding common stock of a company that is currently issued. After the stock is issued and publicly traded (maybe on a small private stock exchange), the value is determined by the market. The market value or market capitalization refers to the entire value of the outstanding stock as valued by a rapidly changing market

Shareholders equity is an account on the balance sheet. Its basically assets minus liabilities as reflected by the accounting equation.  It reflects the financial health, or in some ways, the worth of the company. But its a purely accounting kind of value that reflects the book value of a company's assets.  The market cap is a much better valuation of the company than the shareholders equity.

Generally, sole proprietorship use owner's equity, and corporation use stockholders' equity as it issued shares and the ones who buy those shares are called stockholders.

1 comment:

Commercial Real Estate Orange County said...

The market cap is a much better valuation of the company than the shareholders equity.

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