Once the valuation of assets and liabilities has been determined, the stockholders equity is whatever it must take to make the equation balance. Stockholders equity is, by definition, a residual of whatever is left after enough assets are set aside to cover liabilities. If liabilities exceed assets then stockholders equity is a negative number. We should be aware that we do not need anymore then two consecutive balance sheets to be able to determine if the firm is reporting income or loss. Retained earnings, listed under stockholders equity, is a cumulative number.
Profit is added to retained earnings and losses are subtracted from retained earnings.
All that is necessary to determine profit or loss is to subtract the current retained earning number from the one on the previous balance sheet. The difference in numbers will indicate profitability from one statement to the next. What we see is what they want us to see. The fact that a company reports a loss does not necessarily meant they did not make a profit. Businesses pay taxes on profits not losses.