How can I calculate my equity in the financial statements?
July 29, 2023 | 40,00 EUR | answered by Alice Heck
Dear tax advisor,
my name is Helma Friedendahl and I am the managing director of a small GmbH. In my last annual financial statement, I noticed that my equity has decreased and I am worried about how to calculate it correctly. My company has generated profits in recent years, but has also incurred losses. However, I have difficulty understanding how these profits and losses impact my equity.
I have already tried to analyze the equity situation in my annual financial statement, but I am unsure if I have taken all relevant positions into account. I wonder which items I need to include in the calculation of my equity and how to assess them correctly. Additionally, I am unsure if I should include provisions or hidden reserves in my calculation.
As my company is expected to continue growing in the coming years, it is particularly important to me to calculate and understand my equity correctly. I want to ensure that my company is financially well positioned and that I can make the right decisions for the future.
Could you please explain to me how to correctly calculate my equity in the annual financial statement? Which positions do I need to consider and how can I ensure that my calculation is accurate? Are there any tax aspects that I need to take into account?
Thank you in advance for your support.
Kind regards,
Helma Friedendahl
Dear Mrs. Friedendahl,
Thank you for your inquiry regarding the calculation of equity in your financial statements. It is understandable that you are concerned, especially if your equity has decreased and you are not sure how profits and losses affect it. I am happy to explain to you how you can correctly calculate your equity and which positions you should consider.
Equity consists of various items that are disclosed in the financial statements. The most important positions include subscribed capital, retained earnings, profit brought forward/unabsorbed loss carried forward, net profit/net loss for the year, as well as other equity items such as reserves or special items. These positions reflect the financial situation of your company and show how much equity is actually available.
To calculate your equity correctly, you should first consider all relevant items from your financial statements and consolidate them. Subscribed capital corresponds to the amount that shareholders have contributed to the company. Retained earnings are formed from the profits earned, while profit brought forward includes the profit from previous years that has not been distributed. The net profit/net loss for the year shows the profit or loss of the current fiscal year.
It is important to also include any provisions or hidden reserves in your calculation, as they can also affect your equity. Provisions are liabilities that are formed as a precaution to cover future obligations. Hidden reserves arise when assets are valued at low values in the balance sheet and would achieve higher values upon revaluation.
When calculating equity, you should also consider tax aspects. Profits and losses are treated for tax purposes and can affect your tax burden. It is therefore important that your calculation also takes into account tax regulations and requirements to avoid any tax errors.
To ensure that your calculation is correct, I recommend seeking the support of an experienced tax advisor or auditor. They can assist you in analyzing your financial statements and ensure that all relevant positions are correctly recorded and valued.
I hope that my explanations have been helpful to you and that you have gained a better understanding of the calculation of equity in your financial statements. If you have any further questions or need assistance, I am at your disposal.
Sincerely,
Alice Heck
Tax Advisor
