Statement of Stockholders' Equity

The statement of stockholders' equity is one of the main financial statements of a corporation. It explains the changes during a reporting period in every component of stockholders' equity, from the opening balances to the closing balances shown on the balance sheet. It is also called the statement of shareholders' equity or the statement of changes in stockholders' equity, and under IFRS the equivalent is the statement of changes in equity.

Where the statement of retained earnings covers only profits and dividends, the statement of stockholders' equity covers everything that affects owners' equity: shares issued and repurchased, stock-based compensation, net income, dividends, other comprehensive income and certain restatements. Public companies in the United States usually present it as a separate statement, and it is required for SEC filings.

The statement is normally laid out as a table. Each column is a component of equity, and each row is a type of transaction, with a total column on the right. Typical columns are:

• Preferred stock and common stock at par or stated value, often with the number of shares.
• Additional paid-in capital, the amount received above par.
• Retained earnings, accumulated profits not distributed.
• Accumulated other comprehensive income, such as unrealized gains and losses on certain investments, foreign currency translation adjustments and pension items.
• Treasury stock, shown as a negative amount for shares the company has bought back.
• Noncontrolling interests, in consolidated statements, for the share of subsidiaries owned by outsiders.

Lakeview Tools Inc. starts the year with common stock of $500,000 (500,000 shares at $1 par), additional paid-in capital of $2,000,000, retained earnings of $3,100,000, accumulated other comprehensive income of $60,000 and no treasury stock, for total equity of $5,660,000. During the year:

• It issues 50,000 new shares at $12, adding $50,000 to common stock and $550,000 to paid-in capital.
• It records stock-based compensation of $120,000, credited to paid-in capital.
• It earns net income of $900,000, added to retained earnings.
• It declares cash dividends of $330,000, deducted from retained earnings.
• It buys back 20,000 shares at $14, recording treasury stock of $280,000.
• Other comprehensive loss from currency translation is $25,000.

Closing balances are common stock $550,000, paid-in capital $2,670,000, retained earnings $3,670,000, accumulated other comprehensive income $35,000 and treasury stock minus $280,000. Total equity is:

which gives $6,645,000, matching the sum of the closing columns. Each row of the statement corresponds to one of the transactions above.

The statement shows how a company's equity grew or shrank and why. Investors can see whether growth came from retained profits or from issuing new shares, which dilutes existing holders. It reveals the scale of share buybacks and dividends, the two main ways of returning cash to shareholders, and the size of stock option and other share-based pay. It also shows items of comprehensive income that bypass the income statement, which can be large for banks and insurers holding investment portfolios.

Under US GAAP, companies must present an analysis of changes in each equity caption for each period an income statement is presented, either as a separate statement or in the notes, and SEC rules for public companies require it for the same periods. Under IFRS, IAS 1 requires the statement of changes in equity to show total comprehensive income, the effects of retrospective changes in accounting policies and corrections of errors, and transactions with owners. Together with the income statement, balance sheet and statement of cash flows, it makes up the full set of financial statements.