Shareholders’ equity (or business net worth) shows how much the owners of a company have invested in the business—either by investing money in it or by retaining earnings over time.
On the balance sheet, shareholders’ equity is broken down into three categories: common shares, preferred shares and retained earnings. It appears together with a listing of the company’s liabilities and assets.
Analysts look at the relationship between equity, liabilities and assets to determine a company’s financial stability.
More about shareholders’ equity
The example below shows ABC Co.’s mix of shareholder equity and liabilities. It has $1 of equity for every $2 of debt. This means that the shareholders own one-third of the company’s assets while creditors own the other two-thirds. This balance of ownership is at the high end of a proper balance.