Also referred to as NET WORTH, BOOK VALUE or NET ASSETS. It is the amount which would remain in shareholders’ pockets after repaying all the company borrowings. It is calculated by subtracting the total of all liabilities (total debt) from the total of all company assets.

It is the amount of money contributed by the shareholders to the company’s bottom line. On a typical financial statement, the shareholders’ equity amount will increase every year by that part of profits, which is retained by the company (i.e. not paid out as dividends).

Shareholders’ equity can also be thought of as the funds remaining for shareholders should their company liquidate at given date. From this reason, some investors consider it the only true fair valuation of a company.

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