Equity Growth Rate

Equity, or book value, gives an indication how much a company is worth if it were no longer a company. This is also known as liquidation value. Comparing book value to companies in different industries isn’t particularly telling, because industries that require expensive machinery or real estate would have much higher book values than companies that have more intellectual property. What is useful is looking at the growth rate in the book value. It demonstrates a company’s ability to accumulate money on an annual basis.

The Equity Growth Rate measures the amount of additional equity that is being added to the equity provided by the stockholders. A high, or increasing Equity Growth Rate over several periods is a positive sign, as more of a percentage of equity is being held in stockholder’s equity. A decreasing Stockholder’s Equity Growth Rate may indicate the company is taking in fewer Net Earnings or is giving out more Stock dividends. A change in Total Equity might also cause the rate to decrease, such as a larger than normal dividend disbursement in recent periods.