Shareholders' equity represents the net value of a company, or the amount that would be returned to shareholders if all of the company's assets were liquidated and all its debts repaid. In short, shareholders' equity measures a company's net worth. It can be found on a company's balance sheet, and it's a common financial metric used by analysts to determine the financial health of a company.
How to Calculate Shareholders' Equity
You can calculate a company's shareholder equity by subtracting its total liabilities from its total assets, which are listed on the company's balance sheet. The formula for calculating shareholder equity is below:
Shareholder equity represents the amount of financing the company experiences through common and preferred shares. Shareholder equity could also be calculated by subtracting the value of treasury shares from a company's share capital and retained earnings.
Example of Shareholders' Equity Calculation
Below is the balance sheet for Bank of America Corporation (BAC) as of the end of 2017, from their annual 10K statement. As of December 31, 2017, Bank of America had total assets of $2,281,234 trillion and total liabilities of $2,014,088 trillion.
So, at the time, Bank of America's total shareholders' equity was: $2,281,234 (assets) – $2,014,088 (liabilities) = $267,146 billion.
We can also see the line item on the balance sheet (in green) for shareholder equity. The number is also broken out by each component, including preferred stock, common stock, retained earnings, and accumulated other comprehensive income (or loss) that net to the shareholders' equity total.
Shareholders' equity can also be calculated as: $22,323 + 138,089 + 113,816 – 7,082 = $267,146 billion.
The value of $267,146 billion in shareholders' equity represents the amount left for shareholders if Bank of America paid off all of its liabilities.