Is Total Assets Equal to Total Equity?

by Bryan Keythman

    A company’s total assets equal the total liabilities plus the total stockholders’ equity on the balance sheet. Assets are a company’s resources. Liabilities are the debts used to fund assets. Equity represents money contributed from stockholders and reinvested profits. A company’s equity would equal its total assets if it hypothetically had no liabilities, but virtually every company owes something to someone. You can use a company’s balance sheet to calculate its total assets. The closer the amount of a company’s equity is to its assets, the less it relies on debt to fund its business, which suggests a lower risk of bankruptcy.

    Step 1

    Locate a company’s balance sheet in its most recent Form 10-Q quarterly report or Form 10-K annual report. You can download Form 10-Q and 10-K from the investor relations section of a company’s website or from the U.S. Securities and Exchange Commission’s online EDGAR database.

    Step 2

    Determine the amount of the company’s preferred stock, common stock, additional paid-in capital and retained earnings in the stockholders’ equity section of the balance sheet and add them together. For example, assume a company has $5 million in preferred stock, $40 million in common stock, $150 million in additional paid-in capital and $500 million in retained earnings. Add these up to get $695 million.

    Step 3

    Locate the amount of treasury stock, if any, in the stockholders’ equity section. Subtract treasury stock from your result to calculate the company’s total stockholders’ equity. Treasury stock represents shares that a company repurchased from investors, which reduces equity. In this example, assume the company has $25 million in treasury stock. Subtract $25 million from $695 million to get $675 million in total stockholders’ equity.

    Step 4

    Add the amount of the company’s liabilities listed in the liabilities section of the balance sheet to figure its total liabilities. In this example, assume the company has $30 million in accounts payable, $10 million in accrued expenses and $50 million in bonds payable. Add these together to get $90 million in total liabilities.

    Step 5

    Add the total liabilities to the total stockholders’ equity to calculate the company’s total assets. Concluding the example, add $90 million to $675 million to get $765 million in total assets. The majority of this company’s $765 million in assets is funded with equity, which suggests lower risk than if it used more debt.

    Tip

    • Different industries use varying levels of equity and liabilities to fund assets. Compare the proportion of a company‚Äôs assets that it funds with equity with those of other companies in its industry to determine an acceptable level.

    About the Author

    Bryan Keythman has performed stock investment research and writing for a consulting firm since 2008. He also has prior experience sourcing and underwriting commercial real-estate investment and development opportunities for a commercial real-estate developer. Keythman holds a Bachelor of Science in finance.

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