Register now or log in to join your professional community.
What is decreas and increase Owner's Equity ?
Issuance stocks, dividend paid, buy back of stocks & accumulated amount of retained earning.
Owners' Equity is the difference between The company's resources and its obligations towards external "debt" creditors. Hence, Owner's Equity is viewed as the "residual" company resources that were financed by the company owners.
As such, any items in the Balance Sheet (Assets & Liabilities) changes will affect the residual value to Owners (i.e. Any increases in the value of Assets will increase Owner's Equity and any increases in Liabilities will reduce Owners' Equity). Hence, when valuing a firm for whatever reason (possible sale, acquisition or restatement) the first step is to establish a measure to arrive at the current "fair" value to assets and Liabilities.
Once this is done, the effect of the year's Net Profit should be added (+ for positive Net Profit or - for Net Loss).
The result is a Net "Book" vale of Owners' Equity that can then be used for final evaluation of the company fair "market" value applying one of the valuation techniques (e.g. Discounted Cash Flow, Multiplier, etc.)
