Shareholder Equity is the net worth of a company. It represents the stockholders' claim to a business' assets after all creditors and debts have been paid. Shareholder equity is also referred to as Owner's or Stockholders' Equity. It can be calculated by taking the total assets and subtracting the total liabilities.
Shareholder equity usually comes from two places. The first is cash paid in by investors when the company sold stock; the second is retained earnings, which are the accumulated profits a business has held on to and not paid out to its shareholders as dividends. Because these are the two ways a company generally creates shareholders' equity, the balance sheet is organized to show each parts' contribution.
This page is part of Investing Lesson 3 - Understanding the Balance Sheet. To go back to the beginning, see the Table of Contents. If you have already read this lesson, you can skip directly to the Balance Sheet Quiz.