Short definition: Shareholder’s equity, also known as stockholders’ equity or owners’ equity, represents the residual interest in the assets of a company after deducting liabilities.
Explanation: It is the amount of money that would be returned to shareholders if all of the company’s assets were liquidated and all of its debts were paid off. Shareholder’s equity is a key component of a company’s balance sheet and can be broken down into various components, such as common stock, preferred stock, additional paid-in capital, and retained earnings.
Example: If a company has total assets of $1 million and total liabilities of $600,000, its shareholder’s equity would be $400,000.
Additional information (optional): Shareholder’s equity is often used as a measure of a company’s financial health and stability. A high level of shareholder’s equity indicates that a company has a strong financial foundation and is less reliant on debt financing.