Shareholders' equity

What is left for the owners once every liability is subtracted from every asset. Usually made up of the capital owners put in plus the profits the business has kept.

Example

Northgate's equity of 2,005,000 is 500,000 of share capital plus 1,505,000 of retained earnings.

Important

It is an accounting residue built from historical costs, not an estimate of what the business would sell for. For asset-light companies the two are barely related.

Related terms

• Book value — The value of a business, or of an individual asset, as carried on the balance sheet - historical cost less accumulated depreciation, rather than any market estimate.
• Retained earnings — The accumulated total of every profit the business has ever made and not paid out to its owners, carried on the balance sheet inside equity.
• Return on equity — Net profit divided by shareholders' equity - what the owners earned on the capital recorded as theirs.

Lessons that explain it

• The balance sheet: what it owns and what it owes — A photograph taken on one specific day, showing what the business has, who has a claim on it, and what is left over for the owners. It is the statement that tells you whether a bad year is survivable. (13 min)

All 578 terms in the Investing glossary