Statement of Changes in Equity

Equity is the owners' share of a business. It changes for several reasons, and this statement explains each one, linking the opening equity on one balance sheet to the closing equity on the next.

The main movements are profit or loss for the period, which increases or decreases retained earnings; dividends paid to shareholders, which reduce equity; new shares issued, which increase share capital; shares bought back, which reduce equity; and other comprehensive income items.

For example, a company starts the year with equity of 2 million. It earns net income of 400,000, pays dividends of 150,000 and issues new shares for 250,000. Its equity at the end of the year is 2.5 million.

The statement is usually set out as a table, with columns for each part of equity, such as share capital and retained earnings, and rows for each type of movement. It helps shareholders see how much of the year's profit was kept in the business and how much was returned to them.