Shareholder Fund

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Shareholder Fund Meaning

A shareholder Fund (SF) is the fund available to stakeholders after all liabilities have been met in the event of a company’s liquidation. It is the capital amount legitimately belonging to its stakeholders. It helps to examine the financial soundness of a company.

Also called Shareholder Equity, SF is computed by deducting a firm’s overall liabilities from its total assets. It is recorded on the liabilities side of the balance sheet. It typically includes share capital (common and preferred stock), retained earnings, and other unrealized gains/losses.

Shareholder Fund Meaning

A shareholder Fund is the residual value of a company's asset after all its liabilities are met. It is used with other metrics to determine the company’s financial health.
It is calculated by subtracting the total liabilities from total assets. Both long-term and short-term assets and liabilities are considered while computing it.
It gives shareholders an idea of the expected amount to be received in case of business insolvency, thus deciding their fair share in the company.
Shareholder Fund is of two types, i.e., positive (assets surpass liabilities) and negative (liabilities exceed assets).

Shareholder Fund Explained

A shareholder Fund is money owed, and shareholders can claim on the dissolution of a firm after all dues are cleared. Therefore, it is also referred to as owners’ equity. It appears under the Equity & Liabilities section of a company’s balance sheet and provides useful insight into its overall financial condition.

SF may be positive or negative. A positive SF indicates that the total assets in an enterprise surpass its liabilities. At the same time, negative SF displays that its total liabilities outsize its assets. It means that a firm with a positive SF has assets that can easily cover its liabilities, leaving a greater surplus for its shareholders in the case of its winding up.

On the contrary, with a negative SF, shareholders would be left with nothing after settling liabilities with the available assets. Therefore, investors analyze the balance sheet to ascertain the SF amount to make investment decisions. They favor businesses with positive SF to relish low-risk financial transactions.

However, SF is usually used in conjunction with other financial ratios to discern the general financial stability of a company. Since SF reveals the owners’ investment in the company, it is used to calculate an important financial ratio, return on equity (ROE), that weighs up the total capital investment against the acquired returns for a particular period. It is an important indicator of profitability and efficiency.

Shareholder Fund Formula

There are two formulas to calculate SF.

Formula #1

This is the basic formula for SF in accounting. The balance sheet displays all information for calculating it.

Shareholder Fund = Total assets – Total liabilities

First, pinpoint the total number of assets on the balance sheet. Next, go to the other listing and obtain the aggregate of all liabilities. Subtract liabilities from assets to receive the present amount of shareholder funds.

Here, total assets incorporate both current and noncurrent assets. Current assets are convertible to cash as early as a year, such as stock and accounts receivable. In contrast, non-current assets are long-term assets that take more than a year to encash, such as machinery, vehicles, trademarks, etc.

Similarly, total liabilities comprise both short-term and long-term liabilities. Current liabilities are payments that must be dispersed within a year, such as salaries, taxes payable, etc. In contrast, non-current liabilities are obligations with payment dates longer than one year, such as leases and pension obligations.

Thus, it equates to:

Shareholder Fund = Total assets (Current + non-current assets) – Total liabilities (Current + non-current liabilities)

Formula #2

SF is the total of a company’s share capital and other accumulated earnings as displayed on the liabilities side of its balance sheet.

Shareholder Fund = Paid-in share capital + Retained earnings + Other accumulated incomes/losses + Minority interest – Treasury stocks

Share capital comprises both common and preferred shares. Paid-in share capital includes funds raised by a company through the issue of common and preferred stocks. Preferred stockholders possess preferential rights. They are entitled to payments (dividend and redemption) before common stockholders.

Retained earnings are profits that are not paid out as dividends and amassed by a company since its inception. It is calculated by adding net income for the year (less dividend paid during the current year) to the opening balance of retained earnings at the beginning of the year.

Other accumulated incomes or losses include unrealized cash flows from certain investments, pension plans, hedging activities, etc. Since these cash flows are unrealized, they are not recorded in the income statement.

Minority interest is included in the consolidated balance sheet of a parent company. It represents the amount of equity not held by the parent company in its subsidiary.

Finally, the treasury stocks are shares bought back or repurchased by the company's shareholders. As a result, it reduces the shareholder capital held and hence must be deducted while calculating SF.

Shareholder Fund Calculation Example

Let’s take the details of assets and liabilities from XYZ company’s balance sheet to calculate SF.

Assets		Liabilities
Current assets		Current liabilities
Cash	100,000	Accounts payable	50,000
Receivables	50,000	Accrued expenses	50,000
Inventory	150,000
Total	300,000	Total	100,000
Non-current assets		Non- current liabilities
Equipment	200,000	Secured/Unsecured loans	300,000
Furniture & fixtures	200,000	Deferred tax liabilities	400,000
Real Estate	1,000,000	Lease obligations	200,000
Total	1,400,000	Total	900,000

With the above information, SF can be calculated as follows:

Total assets = Current assets + Non-current assets

= 300,000 + 1,400,000

= 1,700,000

Total liabilities = Current liabilities + Non-current liabilities

= 100,000 + 900,000

= 1,000,000

Shareholder Fund = Total assets – Total liabilities

= 1,700,000-1,000,000

= 700,000

Using Formula 2

Alternatively, the liabilities side of the balance sheet also presents the following information:

Liabilities	Amount	Amount
Paid-up capital
Common stock		400,000
Preferred stock		300,000
Total paid-up capital		700,000
Retained earnings		100,000
Other Accumulated losses		(150,000)
Minority Interest		100,000
Treasury stock		(50,000)

From the above details, SF can be calculated as follows:

Shareholder Fund = Total paid-in share capital + Retained earnings - Other accumulated losses + Minority interest – Treasury stocks

= 700,000 + 100,000 - 150,000 + 100,000 - 50,000

= 700,000

Therefore, using both formulas, the amount of shareholder funds in XYZ company comes out to be $700,000.

Real-Life Example

As shown in the image below, Amazon’s SF stands at 1.38 billion as of December 2021. It is calculated by subtracting total liabilities (2.82 billion) from its total assets (4.20 billion).

The world's largest dairy exporter currently has a shareholder fund with $NZ 493 million ($356 million). A recent Bloomberg news report mentions Fonterra Cooperative Group's plan to cap or buy back the listed Fonterra shareholder's fund. This step strives to hinder possible endangerment to the farmer control and sustain a stable milk supply chain in New Zealand.

Frequently Ask Questions (FAQs)

Q#1 – Is equity and Shareholder Fund the same thing?

A – No, both are two different concepts. In comparing shareholder funds vs. equity, equity usually connotes the proprietorship of a public company. At the same time, SF refers to the total amount of assets to be claimed by the shareholder once the dues are cleared.

Q#2 – Can the value of Shareholder's Funds be negative?

A – Yes, Shareholder's Funds can be of negative value. It is derived from deducting the total liabilities from total assets. So, if the total liabilities of a firm outdo the total number of assets, the value of SF can be negative. It is an alarming situation for shareholders as it may cause them major financial loss in the long run.

Q#3 – What items are included in the Shareholder's Funds?

A – Shareholder’s Funds takes three major components into account. It includes paid-up capital (common and preferred stock), retained earnings, other accumulated incomes or losses, minority shares, and treasury stocks.

Q#4 – What are the types of Shareholder's Funds?

A – Shareholder's Funds are of two types, i.e., positive and negative. Positive SF demonstrates the company's assets' dominance over liabilities, thus denoting good financial health. In comparison, negative SF reflects the predominance of liabilities over assets signaling a dangerous financial situation.