What does stockholders' equity primarily consist of?

Stockholders' equity primarily consists of common stock and preferred stock, reflecting the ownership interests of shareholders in a corporation. Common stock represents shares that provide ownership in the company and typically come with voting rights. Preferred stock, on the other hand, generally provides a fixed dividend and has priority over common stock in asset distribution during liquidation but usually lacks voting rights.

This distinction is vital as stockholders' equity represents the residual interest of the owners after all liabilities have been settled. It is an essential component of the balance sheet and shows how much of the company's assets are financed by the owners.

While earnings distributed to shareholders are an important factor in understanding dividends, they do not comprise stockholders' equity itself; they represent a distribution of profits rather than a component of equity. Total liabilities and assets do not directly refer to stockholders' equity; rather, stockholders' equity can be calculated by subtracting total liabilities from total assets. Revenue generated from sales relates to the company’s operational performance, but it is not a component of equity, as it pertains to revenues rather than ownership interests.