# Shareholder Equity (SE): What It Is and How It Is Calculated

> **Definition**
>
> Shareholder equity is a company’s net worth and the total amount available for return to shareholders after paying off all debts.

## What Is Shareholder Equity (SE)?

Shareholder equity (SE) is a company’s [net worth](https://www.investopedia.com/terms/n/networth.asp), or its total assets minus its total liabilities. It is equal to the total dollar amount that would be returned to the shareholders if the company were liquidated and all its debts were paid off.  

### Key Takeaways

*   Shareholder equity is the net worth of a company to its owners after subtracting all of its liabilities from its assets.
*   You can calculate shareholder equity by adding together the numbers on a company’s balance sheet for assets and liabilities.
*   Positive shareholder equity means the company has at least enough assets to cover its liabilities.
*   The number for retained earnings is part of shareholder equity. This is the percentage of net earnings that is not paid to shareholders as dividends.
*   Shareholder equity gives analysts and investors a clearer picture of the financial health of a company.

![Shareholder Equity (SE)](https://www.investopedia.com/thmb/9XH9VSOJliOcq4QEolunzwx22Bw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ShareholderEquitySE_V1-def750af6b7d42b78c60369d49f6e68f.jpg)

*Investors and analysts use shareholder equity to assess a company's financial health and make informed decisions. — Jake Shi / Investopedia*

## Why Shareholder Equity (SE) Matters

Shareholder equity represents the total amount of [capital](https://www.investopedia.com/terms/c/capital.asp) in a company that is directly linked to its owners. Retained earnings are part of shareholder equity, as is any capital invested in the [company](https://www.investopedia.com/terms/c/company.asp).

If the company ever needs to be liquidated, SE is the amount of money that would be returned to these owners after all other debts are satisfied.

SE is a number that stock investors and analysts look at when they’re evaluating a company’s overall [financial health](https://www.investopedia.com/articles/investing/061916/what-best-measure-companys-financial-health.asp). It helps them to judge the quality of the company’s [financial ratios](https://www.investopedia.com/financial-ratios-4689817), providing them with the tools to make better investment decisions.  

### Formula for Calculating SE

All the information needed to compute a company’s shareholder equity is available on its [balance sheet](https://www.investopedia.com/terms/b/balancesheet.asp).

You can figure out the total SE of a company using the following formula:

$Shareholder Equity = Total Assets - Total Liabilities$

This formula is also known as the accounting equation or the balance sheet equation. The balance sheet holds the data needed for the accounting equation. So, the steps to calculate shareholder equity are as follows:

1.  Locate the company’s total [assets](https://www.investopedia.com/terms/a/asset.asp) on the balance sheet for the period.
2.  Total all [liabilities](https://www.investopedia.com/terms/l/liability.asp), which should be a separate listing on the balance sheet.
3.  Locate the total shareholder equity and add the number to the total liabilities.
4.  Total assets will equal the sum of liabilities and total shareholder equity.

**Current and Long-term Assets**

Total assets include current and [noncurrent assets](https://www.investopedia.com/terms/n/noncurrent-assets.asp). [Current assets](https://www.investopedia.com/terms/c/currentassets.asp) include cash and anything that can be converted to cash within a year, such as accounts receivable and inventory.

Long-term assets are possessions that cannot reliably be converted to cash or consumed within a year. They include investments: [property, plant, and equipment (PP&E)](https://www.investopedia.com/terms/p/ppe.asp), and intangibles such as [patents](https://www.investopedia.com/terms/p/patent.asp).

**Current and Long-term Liabilities**

Total liabilities consist of current and [long-term liabilities](https://www.investopedia.com/terms/l/longtermliabilities.asp).

[Current liabilities](https://www.investopedia.com/terms/c/currentliabilities.asp) are debts typically due for repayment within one year. This includes [accounts payable (AP)](https://www.investopedia.com/terms/a/accountspayable.asp) and any outstanding taxes.

Long-term liabilities are obligations that are due for repayment over periods longer than one year. Companies may have [bonds](https://www.investopedia.com/terms/b/bond.asp) payable, leases, and pension obligations under this category.  

## Positive vs. Negative Shareholder Equity

SE can be either negative or positive. Negative SE means a company’s liabilities exceed its assets. If it’s positive, the company has enough assets to cover its liabilities.

If a company’s shareholder equity remains negative, it is considered to be in balance sheet [insolvency](https://www.investopedia.com/terms/a/accounting_insolvency.asp).

### Understanding Retained Earnings

[Retained earnings](https://www.investopedia.com/terms/r/retainedearnings.asp) are part of shareholder equity. This is the percentage of net earnings that is not paid to shareholders as dividends.

Retained earnings should not be confused with cash or other [liquid assets](https://www.investopedia.com/terms/l/liquidasset.asp). The retained earnings are used primarily for the expenses of doing business and for the expansion of the business.

Moreover, [liquidation](https://www.investopedia.com/terms/l/liquidation.asp) value is not the same as shareholder equity. During a liquidation process, the value of physical assets is reduced, and there are other extraordinary conditions that make the two numbers incompatible.

Many investors view companies with negative shareholder equity as risky or unsafe investments. But shareholder equity alone is not a definitive indicator of a company’s financial health. If used in conjunction with other tools and [metrics](https://www.investopedia.com/terms/m/metrics.asp), an investor can accurately analyze the health of an organization.  

> **Important**
>
> The number of shares issued and outstanding is a more relevant measure than shareholder equity for certain purposes, such as dividends and earnings per share (EPS). This measure excludes treasury shares, which are stock shares owned by the company itself.

## Examples of Shareholder Equity

Here’s a hypothetical example to show how shareholder equity works. Let’s assume that ABC Company has total assets of $2.6 million and total liabilities of $920,000. In this case, ABC Company’s shareholder equity is $1.68 million.

### Real-World Examples

Now let’s take a look at a couple of real-world examples: the world’s two largest soft drink companies:

*   PepsiCo ([PEP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=pep)) shareholder equity for the quarter ending Dec. 31, 2024, was $18.17 billion, a 2.5% decline year over year. This figure represents shareholder equity for [common stockholders](https://www.investopedia.com/terms/c/common_shareholder.asp).  
    
*   Coca-Cola Co. ([KO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KO)), Pepsi’s bigger rival, reported shareholder equity for the same period at $26.37 billion. That’s a 4.03% decline year over year.  
    

## Explain Like I’m 5 Years Old

Shareholder equity is the dollar value of the company to its owners.

It’s equal to all assets minus all liabilities. (Assets are what you own. Liabilities are what you owe.)

If the company ever had to be liquidated, it’s what the shareholders would get.

## What Can Shareholder Equity Tell You?

Savvy investors look beyond today’s market prices when they consider buying or selling stock. Shareholder equity helps them determine the real return that a company is generating for its investors vs. the total amount that those investors have paid for its stock.

For example, a ratio like [return on equity (ROE)](https://www.investopedia.com/terms/r/returnonequity.asp), which is a company’s net income divided by its shareholder equity, is used to measure how well a company’s management is using its equity from investors to generate profits.

Positive shareholder equity means the company has enough assets to cover its liabilities. Negative shareholder equity means that the company’s liabilities exceed its assets.

## What Are the Components of Shareholder Equity?

Aside from stock (common, preferred, and treasury) components, the SE statement includes retained earnings, unrealized gains and losses, and contributed (additional paid-up) capital.

[The retained earnings portion](https://www.investopedia.com/ask/answers/030215/how-are-retained-earnings-related-companys-income-statement.asp) reflects the percentage of net earnings that were not paid to shareholders as dividends and should not be confused with cash or other liquid assets.

All of these numbers should be listed on the company’s earnings reports.

## How Is Shareholder Equity Calculated?

Shareholder equity is the difference between a firm’s total assets and total liabilities. This equation is known as a balance sheet equation because all of the relevant information can be gleaned from the balance sheet.

Take the equity at the onset of the accounting period, add or subtract any equity infusions (such as adding cash from shares issued or subtracting cash used for treasury share purchases), add [net income](https://www.investopedia.com/terms/n/netincome.asp), subtract all cash dividends paid out and any [net losses](https://www.investopedia.com/terms/n/netloss.asp), and what you have left is the shareholder equity for that period.

## The Bottom Line

Successful investors look well beyond today’s stock price or this year’s price movement when they consider whether to buy or sell.

Shareholder equity is one of the important numbers embedded in the financial reports of public companies that can help investors come to a sound conclusion about the real value of a company.

> **Article Sources**
>
> 1.  Macrotrends. “[PepsiCo’s Shareholder Equity 2010–2024](https://www.macrotrends.net/stocks/charts/PEP/pepsico/total-share-holder-equity).”
>     
> 2.  Macrotrends. “[Coca-Cola Shareholder Equity 2010–2024](https://www.macrotrends.net/stocks/charts/KO/cocacola/total-share-holder-equity).”