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LSDefine
Simple English definitions for legal terms
stockholders' equity
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A quick definition of stockholders' equity:
Stockholders' 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 belongs to the owners of the business.
A more thorough explanation:
Stockholders' 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 liabilities of a business entity from its assets. The resulting amount represents the residual claim of the owners on the business's assets.
For example, if a corporation has assets worth $1 million and liabilities worth $500,000, its owners' equity would be $500,000. This represents the amount of value that the owners have in the corporation's assets after all liabilities have been paid.
Another example would be a small business owned by a sole proprietor. If the business has assets worth $100,000 and liabilities worth $50,000, the owner's equity would be $50,000. This represents the amount of value that the owner has in the business's assets after all liabilities have been paid.
Overall, stockholders' equity is an important measure of a business's financial health and the value that its owners have in its assets.