Why does North Data sometimes show negative equity in the financials of some German companies?

This article explains in which cases North Data reports negative equity and why this representation makes economic sense.

Overview 

For some German companies, you may see negative equity in the North Data financials, even though the official balance sheet shows equity as zero. 

This can be confusing – so here is an explanation of how North Data presents equity and why this happens. 

How does North Data calculate equity? 

North Data does not simply show equity as "assets minus liabilities". 

Instead, we base it on specific balance sheet items: 

• First, the value of the balance sheet item "equity" (positive equity) is taken over. 
• If this value is €0, we check whether a "deficit not covered by equity" is reported. 
• If such a deficit is present, it is shown in the financials as equity with a negative sign – supplemented by an explanatory note. 
  This presentation thus reflects both the official balance sheet content and the economic situation. 

Why not always show zero? 

According to § 266 HGB, the deficit not covered by equity is shown separately, not as negative equity. 

But: 

• A value of €0 for equity would be misleading for many users – especially international ones. 
• The negative presentation clearly shows that the equity is fully consumed and exceeded. 
• This helps to better recognize economic risks. 

Background on accounting according to HGB 

According to § 266 (3) HGB, the structure of equity in the balance sheet is clearly regulated. If equity is completely consumed by losses, the remaining deficit is shown as a "deficit not covered by equity". 

Important: 

• Depending on the accounting case, this deficit can appear on either the asset side or the liability side of the balance sheet. 
• It does not represent a negative equity position but documents the complete depletion of equity and a financially critical situation. 

Conclusion for users 

• The financials from North Data show the value from the balance sheet – including possible deficits – in a way that keeps the economic situation transparent. 
• Negative equity in the financials signals an over-indebted situation, even if the balance sheet formally shows zero equity. 
• For a detailed legal review, the balance sheet including the notes should be examined.