Glossary
Shareholder Equity
What is left of a company's assets once everything it owes is subtracted: the shareholders' claim on the balance sheet.
It is the balancing figure. Assets sit on one side, liabilities on the other, and shareholder equity is the difference, which is why a balance sheet balances. Filings and finance sites also call it book value or net assets, and all three names point at the same subtraction.
It is an accounting number rather than a market one. It records what was paid for things and how much of that cost has been written off since, so a company whose real assets are brands, software and research can carry a small equity figure beside a large market cap, while a company that owns factories can carry the reverse.
Most readers meet it as the denominator of debt-to-equity. A ratio of 1 means what the company owes equals what shareholders own. Because the figure is a subtraction, a run of losses or a large buyback shrinks it, and that moves the ratio without the debt having moved at all, which is worth knowing before reading a change in it as news about borrowing.
Learn this properly
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Related terms
- Balance SheetOne of the three main financial statements: a snapshot of everything a company owns and everything it owes, on a single date.
- Debt-to-Equity RatioHow much a company owes compared with what shareholders own, where a ratio of 1 means the two are equal.
- BuybackA company using its own cash to purchase its own shares on the open market, reducing the number outstanding.
- Net IncomeWhat is left of revenue after every expense, interest payment, and tax has been subtracted: the bottom line.
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