Total Stockholders' Equity, often known as 'shareholders' equity' or 'net assets', is the residual interest in the assets of an entity after deducting liabilities. In simpler terms, it's the total amount of money that would be returned to a company's shareholders if all the assets were liquidated and all the company's debts were paid off.
While the above definition provides a basic understanding of total stockholders' equity, let's delve a bit deeper. It is made up of two main components - contributed capital (money that the company raises by issuing shares) and retained earnings (the portion of net income which is retained by the corporation rather than distributed to its owners as dividends).
The total stockholders' equity can fluctuate from one accounting period to another due to several factors such as issuing or buying back shares, changes in retained earnings, or revaluation of assets.
It acts as an important indicator of a company's financial health. Higher stockholders' equity indicates a company's ability to fund its operations without relying on external sources, thereby, implying lower financial risk.
For Amazon, total stockholders' equity is calculated by subtracting total liabilities (like accounts payable, accrued expenses, and long-term debt) from total assets (like cash, inventories, and property).
Apple's total stockholders' equity is calculated by subtracting the total liabilities (like accounts payable, accrued liabilities, commercial paper, and term debt) from its total assets (like cash, marketable securities, and accounts receivable).
For Tesla, total stockholders' equity is derived by subtracting the total liabilities (like accounts payable, accrued liabilities, and automotive debt) from its total assets (like cash, accounts receivable, and inventories).