Definition of Shareholder’s equity

Shareholder’s equity represents the amount which is obtained from deducting all liabilities from company’s total assets. It simply refers the claim of shareholders over the assets of a company after paying off all the debts and obligations.

Formula for calculating shareholder’s equity:

The below given formula can be used in this calculation:

Shareholder’s equity is also known as “book value” of company.

Since the company’s assets are shown at their cost or lower (and not at their market values), it will be important not to associate the reported amount of Stockholders’ equity with the market value of the company. Hence, it is a poor choice of words to refer to Stockholders’ Equity as the corporation’s “net worth”.


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