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 companys shareholders if all of the assets were liquidated and all of the companys debt was paid off.
Equity is found on a companys 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 corporations balance sheet. In this article, we will explore the different types of equity including how investors can calculate a corporations equity or net worth.
Formula and Calculation for Shareholder Equity
it is important for shareholders to know the financial stability of the companies they invest into. The following formula and calculation can be used to determine the risk involved with investing in a firm.
Shareholders Equity=Total Assets−Total Liabilities
The balance sheet holds the basis of the accounting equation, which is as follows:
Assets= Liabilities+Shareholder Equity
However, we want to find the value of equity, which can be done as follows:
What Does Equity Tell You?
The accounting equation for the balance sheet as well as equity has applications beyond companies. We can think of equity as a degree of ownership in any asset after subtracting all debts associated with that asset.
Below are several types of equity: