The last period's ending number is the same as this period's beginning number. In some cases, a company's financial statements may include a table called the reconciliation of stockholders' equity. In that case, the beginning stockholders' equity will be listed at the beginning of that table.
If the balance sheet total is unavailable, reverse the process to figure out the beginning stockholders' equity
Stockholders' equity can change because of three fundamental things: profits or losses, capital distributions like dividends, and capital additions like stock issues. Knowing this, we can figure out the beginning stockholders' equity by working backward from the period-end stockholders' equity.
For example, let's assume that a company
- Had ending stockholders' equity of $1,000.
- Net income of $200.
- Paid $50 in common stock dividends.
- Issued $100 in new common stock.
With this information, we can work our way backward to figure out beginning stockholders' equity. As a rule of thumb, if one of these changes would increase capital, we'll subtract it from the period-end stockholders' equity. If it decreases capital, we'll add that number back.
Let's work through this example. First, we subtract the $200 of net income from period-end stockholders' equity. Profits increase stockholders' equity, so when working backward, we must subtract them to move from ending to beginning stockholders' equity.
Then we add back the $50 in common stock dividends and finish up by subtracting the $100 in newly issued common stock. That results in a beginning shareholders' equity of $750.
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