GlossaryAccounting & Bookkeeping
Equity
Also called: owners equity, shareholders equity, net worth
What is Equity?
Equity is what belongs to the owners: total assets minus total liabilities. It comprises capital introduced plus accumulated retained earnings, less any drawings or distributions.
Why Equity matters
Equity is the honest measure of what a business is worth on its own books. Growing equity means the business is building value rather than merely turning over cash.
Equity formula
Equity = Assets − Liabilities
Also: capital introduced + retained earnings − drawings.
How Equity works in practice
Watch capital introduced separately from retained earnings. A rising equity balance driven only by fresh owner money is a very different story from one driven by profits.
Frequently asked questions
No. Book equity reflects recorded costs, not what a buyer would pay.