Summary
Equity represents the residual value of a company’s assets after liabilities are deducted. It is commonly referred to as shareholders’ equity.
Equity shows the value attributable to shareholders based on the company’s balance sheet.
Why it matters
Equity is an important measure of financial strength and long-term stability. It is used in valuation and profitability ratios such as Book Value per Share, Price-to-Book, and Return on Equity.
A growing equity base may indicate retained profits and increasing shareholder value.
How it is calculated
Equity = Total Assets − Total Liabilities
How to read it
Higher equity may indicate a stronger balance sheet, but it should be reviewed together with profitability and asset quality. Declining equity may reflect losses, dividends, asset write-downs, or other changes.
Equity should be interpreted in context.