Some companies prefer to pay all their earnings to shareholders. They do so because their earnings power is so great that they do not need to retain earnings. When a company pays all their earnings to shareholders, the value of Total Equity becomes a negative number.
Companies in a highly competitive industry may also have negative Total Equity. To differentiate between a company with great earnings power and a company in a competitive industry with negative Total Equity, check the 10 Year Summary for strong Net Income.
What to check
If Shareholders' Equity is negative check the 10 Year Summary for strong Net Income:
| If the Company has Negative Equity | |
| Durable Competitive Advantage | Strong Net Income (10 Year Summary) |
| Competitive Industry | Erratic Net Income (10 Year Summary) |