Glossary
Shareholders' equity
What a company would have left for its owners after paying every liability: total assets minus total liabilities, as shown on the balance sheet.
On this page
Shareholders' equity (also called stockholders' equity) is the owners' claim on a company: everything it owns minus everything it owes. It is the bottom section of the balance sheet and the starting point for book value, return on equity and the price-to-book ratio.
How it works
Equity has two main sources. Paid-in capital is money investors put in when the company issued shares. Retained earnings are profits kept in the business instead of paid out as dividends. Share buybacks show up as treasury stock, which reduces equity, and some gains and losses pass through accumulated other comprehensive income.
Reading it carefully
Equity is an accounting figure, not a market value. Assets sit on the books mostly at historical cost, and many valuable things, such as a brand built internally, never appear at all. That is why a software company can trade at many times its equity while a bank trades near it.
Equity can also be negative. That is usually a warning in a struggling firm, but some large, profitable companies reach it on purpose by borrowing to fund buybacks and dividends for years. A negative figure there reflects capital-return policy rather than insolvency, and it makes return on equity meaningless for that company.