Simple English definitions for legal terms
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Shareholders' equity, also known as owners' equity, is the total value of the owners' financial interests in a business. This includes the capital contributed by the owners and any retained earnings. To calculate owners' equity, you subtract the liabilities of the business from its assets. Owners' equity represents what is left over after all debts and obligations have been paid. It is the amount of money that the owners would receive if the business were to be sold or liquidated.
Shareholders' equity, also known as owners' equity, is the total value of the owners' financial interests in a business entity. It includes the capital contributed by the owners and any retained earnings.
Owners' equity is calculated by subtracting the total liabilities of a business entity from its total assets. The resulting amount represents the residual claim of the owners on the assets of the business.
For example, if a corporation has total assets worth $1 million and total liabilities of $500,000, its owners' equity would be $500,000. This represents the amount of money that the owners have invested in the business, as well as any profits that have been retained by the corporation.
Another example would be a small business owner who invests $50,000 of their own money into their business. If the business generates $10,000 in profits over the course of a year and the owner reinvests those profits back into the business, their owners' equity would be $60,000 ($50,000 initial investment + $10,000 retained earnings).
Overall, shareholders' equity is an important measure of a business's financial health and represents the value that the owners have in the business.