How to Determine the Net Income for Stock Equity Statements

Rising net income leads to higher stockholders' equity.

Jupiterimages/Comstock/Getty Images

A statement of stockholders' equity shows the changes to a company’s stockholders' equity during an accounting period. Stockholders' equity is an important figure to monitor when you own stock. It represents the accounting value of all stockholders’ stake in the company. A company’s net income, or profit, increases its stockholders’ equity. Net income equals total revenue minus total expenses and is reported on the income statement. You can determine net income and use it with the other items on the statement of stockholders' equity to see whether stockholders’ equity is growing or declining.

Step 1

Find the income statement and statement of stockholders’ equity in the company's most recent quarterly report on Form 10-Q, or in its annual report on Form 10-K. You can download these forms from the investor-relations section of the company's website or from the U.S. Securities and Exchange Commission’s online Electronic Data Gathering, Analysis and Retrieval database, called EDGAR.

Step 2

Identify total revenue and any gains or other income reported on the income statement, such as interest income. Add these amounts to calculate total income. For example, assume a company generated $500 million in total revenue and $30 million in interest income. Add these to get $530 million in total income.

Step 3

Identify the cost of goods sold, total operating expenses, and any other expenses such as income taxes or losses reported on the income statement. Add these to calculate total expenses. In this example, assume the company had $300 million in cost of goods sold, $140 million in operating expenses and $25 million in taxes. Add these to get $465 million in total expenses.

Step 4

Subtract total expenses from total income to calculate net income. In this example, subtract $465 million from $530 million to get $65 million in net income. A negative result would mean a net loss.

Step 5

Identify the stockholders’ equity balance at the beginning of the period and the amount of new stock issued in the “Total” column of the statement of stockholders’ equity. Add these items. In this example, assume the company had $600 million in beginning equity and it issued $25 million in stock. Add these to get $625 million.

Step 6

Find the amount of cash dividends paid and the amount of treasury stock purchased in the same column. Add theses items. In this example, assume the company paid $10 million in dividends and bought $5 million in treasury stock. The sum of these is $15 million.

Step 7

Subtract your Step 6 result from your Step 5 result. If you calculated positive net income in Step 4, add it to this step’s result to determine the stockholders’ equity balance at the end of the period. If there was a net loss, subtract it from this step’s result to figure ending stockholders’ equity. Concluding the example, subtract $15 million from $625 million to get $610 million. Add $65 million in net income to $610 million to get $675 million in ending stockholders’ equity. This means stockholders’ claim on the company’s assets increased from $600 million to $675 million during the period. Net income contributed $65 million toward the increase.