Stockholders’ equity is the value of a firm’s assets after all liabilities are subtracted. It’s also known as owners’ equity, shareholders’ equity, or a company’s book value. You might think of it as how much a company would have left over in assets if business ceased immediately. Any stockholder claim to assets, though, comes after all liabilities and debts have been paid. These examples demonstrate how stockholders’ equity provides a snapshot of a company’s financial health, indicating the company’s net value from the shareholders’ perspective.

Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. If a business has more liabilities than assets or does not have enough stockholders’ equity to cover its debt, then it will need to turn to outside sources of capital.

How Do You Calculate Equity in a Private Company?

Ask a question about your financial situation providing as much detail as possible. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such definition stockholders equity information is provided solely for convenience purposes only and all users thereof should be guided accordingly. One common misconception about stockholders’ equity is that it reflects cash resources available to the company.

Paid-in capital also referred to as stockholders’ funds, is the amount of money that people have invested in a company. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs.

Equity Definition: What it is, How It Works and How to Calculate It

The shareholder equity ratio indicates how much of a company’s assets have been generated by issuing equity shares rather than by taking on debt. The lower the ratio result, the more debt a company has used to pay for its assets. It also shows how much shareholders might receive in the event that the company is forced into liquidation.