What increases stockholder equity?


Quick Answer

Factors that increase stockholder equity are an increase in retained income and an increase in capital contributions. Stockholder equity can also easily decrease, an example being when a firm has net losses instead of net revenue.

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Full Answer

Stockholder equity, also known as shareholder equity, is calculated as the total assets of a firm minus its total liabilities or the share capital of the firm plus its retained earnings minus its treasury shares. Stockholder equity is the book value or the net worth of a company, and it indicates how healthy the company's financial standing is. It is shown in a company's balance sheet to calculate important financial ratios that are used by investors.

An increase in retained income is the primary factor for an increase in stockholder equity. Retained income is calculated as a firm's net income minus the dividends it paid to investors within a given financial period. Steps such as reducing personnel in management, raising the prices of products and imposing strict operational budgets on employees contribute to an increase of stockholder equity.

An increase in a firm's capital also goes a long way in increasing the stockholder equity. By issuing shares of capital, the stockholder equity increases. Paid-in capital also increases when a company experiences paid-in capital in excess of par value.

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