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There's a pattern I often see on companies balance sheets that I don't understand. The company will fail to generate a profit for the year, however their equity (assets - liabilities) increases.

I'll use the company CrowdStrike Holdings (CRWD) as an example. They had -$234 million net income for 2021.

Net Income

However their equity increased from $871 million in 2020, to $1.04 billion in 2021.

Equity

Are there ways other than net income to increase equity? Or are there ways a company can make money that doesn't count toward net income (like maybe selling shares)?

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  • Among other things, they raised $750M in 2021. ir.crowdstrike.com/news-releases/news-release-details/…
    – ceejayoz
    Mar 11, 2022 at 21:12
  • @ceejayoz So if a company sells part of itself to investors that increases it's equity? Why isn't total market capitalization included in a companies assets statement then?
    – YAHsaves
    Mar 11, 2022 at 22:46
  • No if a company issues additional shares in increases equity, but dilutes the percentage of existing shareholders. You're increasing the size of the pie by adding pieces, which makes the slices that everyone holds (relatively) smaller
    – D Stanley
    Mar 11, 2022 at 22:49
  • Market cap is not an accounting measure - it's the value that the market places on the company based on share price.
    – D Stanley
    Mar 11, 2022 at 22:49

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The most likely reason is that they issued additional equity, which increases cash (assets) and equity. It's also possible that other companies in which they have an equity stake went up in value, but that's less common.

Looking at their balance sheet, their Additional Paid In Capital (what they sold stock for) went up by about $270 Million in 2021, which would account for most of the increase in equity (minus the net loss). They also had a gain of about 10 Million in "Minority Interests".

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Another possibility - but not what happened here - is they invested into stores, manufacturing etc. If you could have made $100m profit but invested that number in a new plant, you suddenly have no profit but additional assets.

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  • Could the same thing happen if their existing assets increase in value? Say an office building goes up as the overall real estate market goes up? Or are existing assets evaluations included in net income reports?
    – YAHsaves
    Mar 13, 2022 at 1:23

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