For some recently public companies, total assets minus total liabilities is a positive number, but shareholders' equity is negative. In some cases, this appears to be the result of a past sale of preferred shares. Credo (NASDAQ: CRDO) offers one such example:

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In other cases, the shareholders' equity appears to be negative as the result of a SPAC acquiring or merging with the company in return for common stock with a guaranteed redemption value (perhaps guaranteed for only a fixed length of time). Vistas' acquisition of Anghami (NASDAQ: ANGH) may be an example of this:

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The negative shareholders' equity in these examples (and similar examples) seems like it could be a concern to investors. But should it be? If net income is also negative and will be so for a long time, are there ways that shareholders' equity can flip back into positive numbers without the company selling more stock?

Note: This question has some similarities to this earlier question about McDonald's, but my understanding is that shareholders' equity is negative for McDonald's because total liabilities exceed total assets (in part due to 10b-18 buybacks), rather than because of various stock sales as in the above examples.

  • Can you explain the connection of this question to personal finance? Accounting questions are usually off topic for this site.
    – JohnFx
    Commented Feb 16, 2022 at 2:01
  • 2
    Hi @JohnFx, I intended it as a question on the investing side of personal finance and am not specifically seeking accounting information -- so I wouldn't think it would be classified with accounting for that reason. There are also a variety of other similar questions on this site regarding negative shareholders' equity, and some of these are popular (e.g., 16k views), so for consistency we would probably have to label a lot of other well-received questions off-topic too.
    – SapereAude
    Commented Feb 16, 2022 at 3:58

3 Answers 3


Bankruptcy may be one reason, but you also see these balances in startups that are initially not profitable but have raised a lot of cash in equity and/or debt financing. The reason people invest in non-profitable companies is because they believe that they will be profitable in the future.


You see this, primarily, with firms that have gone bankrupt sometime in the past and where preferred shares were created by the bankruptcy court in exchange for debt. It can also be created to avoid bankruptcy or liquidation.

You do not interpret this. It is what it is. The firm survived. How much equity exists in a firm is partly a transformation of other items on the balance sheet. For example, if a firm has 100 MM dollars in deferred taxes and the deferral reverses in twenty years, that is the equivalent of a twenty-year interest-free loan. A firm could buy a zero-coupon bond maturing at the same time in the same amount and the difference would be equity.

If the number had been positive, you also wouldn't interpret it. It is what it is.

To work out the equity value, you need to read the terms and conditions of the preferred offerings. What will or how will those shareholders act?

There is no simple answer to your question. The number is your starting point, but it isn't the actual value. It is never the actual value except for relatively new firms.


With the help of the answers of Dave Harris and D Stanley, I think I may have worked out an answer to the original question. If this answer contains errors, anyone with the relevant expertise is invited to edited the answer or suggest corrections in the comments.

Note that this answer is speculative and subject to correction.

In examples like those in the original post (CRDO and ANGH), the preferred stock, warrants, or other items in the "Commitments and Contingencies" section of the balance sheet may eventually be converted to common stock or expire. When this occurs, common shareholders' equity will increase by the corresponding amount, since these items no longer represent commitments with priority over common stock. In such cases, shareholders' equity may switch from negative to positive values without the company generating positive income or selling more stock.

Let's consider a few examples. The balance sheet for Bluejay Diagnostics (NASDAQ: BJDX) shows a case in which convertible preferred stock was converted to common stock, and this appears to have led to an increase in shareholders' equity of a little over $3M:

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Similarly, the balance sheet for Hippo Holdings (NYSE: HIPO) appears to show an instance in which preferred shares were converted to common stock and this increased shareholders' equity by about $1.1B:

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In the case of SPAC warrants, it may be that once the warrants can no longer be redeemed for common stock, the redemption agreement (at $10/share in the case of CRDO) no longer represent a commitment with priority above common stock, and therefore shareholders' equity may increase accordingly, again without the company issuing new shares or generating positive income.

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