The amount of equity that a company offers to common shareholders is known as common equity. Calculating common equity is very easy. Many of the financial statements issued by the company contain total equity of shareholder, from which you need to deduct preferred equity to arrive at common equity. Common equity is an important piece of information for people investing in any company as it allows them to work out important ratios, including returns on common equity and thus know how gainful will it be invest in a particular company as a common shareholder. This is how to calculate common equity:
1. You’ll need a copy of the balance sheet of the company to know its common stock that’s outstanding and multiply the same by the face value of stock to get the desired figure. In case of a company having 100,000 shares with a face value of $1/per share, its common equity will be $100,000.
2. Find out capital surplus for common stock. Generally, you’ll find it mentioned in the balance sheet of the company under the head Additional Paid-in Capital (APIC.) For instance, a company may have Common Stock worth $25,000.
3. Next, you find out the retained earnings of that company. You’ll find it included in the balance sheet under the head retained earnings below the Stockholders’ Equity section. Let’s say the company’s retained earnings are $20,000.
4. Common equity is equal to value of common stock+ surplus capital+ retained earnings. In this example common equity will be $100,000 + $25,000 + $20,000 = $145,000
Hope the answer is clear of the question “How to Calculate Common Equity”