What Is Equity?
Equity is typically referred to as shareholder equity (also known as shareholders' equity) which represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company's debt was paid off.
Equity is found on a company's balance sheet and is one of the most common financial metrics employed by analysts to assess the financial health of a company. Shareholder equity can also represent the book value of a company.
There are various types of equity that extend beyond a corporation’s balance sheet. In this article, we’ll explore the different types of equity including how investors can calculate a corporation’s equity or net worth.
There are various types of equity, but equity typically refers to shareholder equity, which represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company's debt was paid off.
We can think of equity as a degree of ownership in any asset after subtracting all debts associated with that asset.
Equity represents the shareholders’ stake in the company. The calculation of equity is a company's total assets minus its total liabilities.
The Formula for Shareholder Equity Is
Shareholders'~equity = Total~Assets - Total~Liabilities Shareholders′ equity=Total Assets−Total Liabilities
How to Calculate Shareholder Equity
The balance sheet holds the basis of the accounting equation, which is as follows:
Assets = liabilities + shareholder~equity Assets=liabilities+shareholder equity
However, we want to find the value of equity, which can be done as follows:
Locate the company's total assets on the balance sheet for the period.
Locate total liabilities, which should be listed separately on the balance sheet.