In the context of accounting, equity capital (also known as shareholders’ equity) constitutes all components of the shareholders’ equity (as appear on the statement of financial position/ balance sheet of an entity). In this sense, equity capital consists the par value of all stock issued (shares outstanding or share capital), additional paid-in capital, retained earnings, and reserves relating to shareholders. In calculation, equity capital has to be adjusted against any treasury stock (repurchases of own shares).
Equity capital = share capital + retained earnings + reserves – treasury stock
Equity capital is the claim of the owners on the assets of an entity. That is, it corresponds to the assets that remain after an entity’s liabilities have been deducted.
At inception, equity capital is equal to share capital (as other components, i.e., retained earnings, reserves, and treasury stock repurchases will be null). At this point in time, equity capital is also equal to contributed capital and paid-in capital.
Comments