What is the purpose of a statement of changes in equity?

The purpose of a statement of changes in equity is to show how equity is affected by changes in ownership, retained earnings, and other factors over time. This financial statement provides a detailed account of the various components that contribute to changes in the equity section of a company's balance sheet, such as issuing new shares, dividends paid, and profits or losses accumulated during the reporting period.

By presenting this information, the statement helps stakeholders understand how the company's equity has evolved, reflecting the overall financial health and the decisions made by management that impact shareholders' interests. It outlines movements in reserves and retained profits, allowing users to gauge how effectively a company is using its earnings and managing its equity structure.

This statement is distinct from others, such as income statements, which focus on revenue and expenses, and balance sheets, which present a snapshot of assets and liabilities. It does not analyze market trends or competition, as those aspects fall under different analyses altogether. Understanding the statement of changes in equity is crucial for investors and analysts to track a company’s growth and sustainability concerning its ownership structure and profit retention.