Shareholders’ equity

Shareholders’ equity consists of all the money belonging to shareholders. Part of this is share capital – the money the company raised by selling its shares. But shareholders’ equity also includes: profits from previous years that have not been distributed – paid out to shareholders – as dividends. Shareholders’ equity is the same as the company’s net assets, or assets minus liabilities.

A balance sheet does not show how much money a company has spent or received during a year. This information is given in other financial statements: the profit and loss account and the cash flow statement.

IV. Answer the questions

1. What are companies required to do?

2. What is a balance sheet?

3. What do the two halves show?

4. What is considered business’s assets?

5. What are liabilities?

6. What does shareholders’ equity consist of?

V. Are the following statements true or false? Give reasons for your answers

1. British and American balance sheets show the same information, but arranged differently.

2. The revenue of the company in the past year is shown on the balance sheet.

3. The two sides or halves of a balance sheet always have the same total.

4. The balance sheet gives information on how much money the company has received from sales of shares.

5. The assets total is always the same as the liabilities total.

6. The balance sheet tells you how much money the company owes.

VI. Complete the sentences. Look at the texts to help you

1. …………… are companies that provide other companies with materials, components, etc.

2. …………… are profits that the company has not distributed to shareholders.

3. …………… are things a company owns and uses in its business.

4. …………. consist of everything a company owes.

5. …………. consists of money belonging to a company’s owners.

VII. Make word combinations using a word from each box. Then use the word combinations to complete the sentences below

distribute grant owe pay retain

liabilities money profits earnings credit

1. We … …….. a lot of our ………… because we don’t …….. any of our ……….. to the shareholders.

2. Most businesses have customers who ……….. ………….., because they ………. them 30 or 60 days’ …………. .

3. We have a lot of …………… that we’ll have to ………… later this year.

VIII. Do the following task

Look at the balance sheets of some large companies. What are the most common sub-divisions of these categories: assets, liabilities, and shareholders’ equity?

XI. Test your English

Fill in missing words in the sentences below. Choose from the box.

administrative expenses cost of sales distribution dividend extraordinary ordinary retained turnover

1. As AT Designs Ltd is a small printing company, all their printing contracts are known as ordinary activities.

2. Recently, a film company paid AT Designs a large amount of money to use the company’s premises when they were making a film. This was recorded in the Profit and Loss Account as __________ income.

3. Income which the company makes in its normal activities is known as ___________.

4. At the end of the year, some of the profits may be shared out among the shareholders who will receive a __________.

5. The costs of getting the goods to the customers are shown as _________ costs in the Profit and Loss Account.

6. Materials which are used up in manufacturing and worker’s wages are recorded as__________.

7. The secretary’s salary and expenses incurred in the office are shown as_________.

8. The company may decide to keep some of the profits at the end of the year and the amount is shown as__________ profits.

Key: 16 Profit and loss