Fundamental Glossary / Financial Statements
Shareholders' Equity
The residual interest in assets after deducting liabilities. It belongs to the owners.
Formula
Share capital + reserves and surplus. Also called net worth or book equity.
What it means
Equity grows when the company earns a profit and keeps it, or when it issues shares. It shrinks with losses, dividends, and buybacks.
It is a residual, not a pile of cash. A company can have large equity and little cash if the equity is tied up in plant and inventory.
How to read it
Book equity compared with market capitalization is the P/B ratio. Equity compared with profit is the base of ROE.
What to watch
A revaluation reserve increases equity without a sale. It is not earned profit and often should be excluded from the capital you use for return ratios.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.