Enter the total equity and preferred equity into the calculator to determine the common equity. This calculator helps in understanding the portion of equity that is available to common shareholders after preferred shareholders’ claims are accounted for.
Common Equity Formula
The following formula is used to calculate the common equity.
CE = TE - PE
Variables:
- CE is the common equity ($)
- TE is the total equity ($)
- PE is the preferred equity ($)
To calculate the common equity, subtract the preferred equity from the total equity.
What is Common Equity?
Common equity represents the amount of equity capital that is attributed to common shareholders. It is the value of a company’s assets less its liabilities and preferred equity. Common equity is important for shareholders as it indicates the residual equity value that would be distributed to common shareholders in the event of liquidation after settling all debts and preferred shareholders’ claims.
How to Calculate Common Equity?
The following steps outline how to calculate the Common Equity.
- First, determine the total equity (TE) of the company in dollars.
- Next, determine the preferred equity (PE) of the company in dollars.
- Next, gather the formula from above = CE = TE – PE.
- Finally, calculate the Common Equity (CE) in dollars.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
Total Equity (TE) = $500,000
Preferred Equity (PE) = $100,000