Syracuse Business Daily

What is the difference between shareholder equity and shareholder value?

Additionally how can shareholder equity(book value) increase but not the value of the shares themselves

Public Comments

1. Shareholder equity is the book value. It is the historical or stated cost in the case of stock. Shareholder value is the market value. It is what the shares are worth now. The book value can increase if additional stocks are issued, but this will not change the (market) value. That is simply determined by how much the stock is trading for.
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4. Shareholders' equity is the amount shown on the balance sheet of a company. It includes common stock and reserves. Here the common stock is shown at the number of ordinary shares issued multiplied by the par value of those shares. Shareholders' equity can increase due to the following reasons. 01. The issuance of new ordinary shares by the company. 02. The increase of reserves of the company such as retained earnings, general reserves and etc due to the increase in profits and so on. Shareholders' value (wealth) is represented by the market price of a firm's common stock. So value can be increased by increasing the market price of the shares of the company. Primarily the market price of shares is a function of three major factors. The amount of cash flows generated by the asset, the timing of those cash flows and the riskiness of those cash flows. Every decision made by a company including investment decisions and financing decisions has an impact on the level and the riskiness of the cash flows. Hence a company can increase the value of its stock by making decisions that maximize the value of its stock. For instance in determining how to finance a particular project the company can determine the optimal capital structure, which minimizes the firm's WACC. This will ultimately increase the value of the assets.
5. IF YOUR COMPANY MADE MONEY LAST YEAR,THEN THE BOOK VALUE OF THE COMPANY'S COMMON STOCK WOULD HAVE INCREASED. IF THE COMPANY WERE TO BE BOUGHT OUT IT COULD BRING GREATER SHAREHOLDER VALUE THAN THE BOOK VALUE OF THE STOCK. IF THE STOCK WERE LIQUIDATED, IT COULD BRING > GREATER OR < LESS THAN BOOK VALUE.