Shareholders' equity is the amount by which a company's total assets exceed its total liabilities, representing the owners' claim on the business. It is another name for stockholders' equity, which explains the components, formula and analysis in full. In simple terms, it is what would be left for shareholders if the company sold its assets at their balance sheet values and paid off all its debts.
How the term is used
Shareholders' equity and stockholders' equity mean exactly the same thing. US companies use both, with stockholders' equity slightly more traditional in American textbooks, while shareholders' equity is standard in the United Kingdom, Canada, Australia and in many IFRS reports, which may also use total equity or equity attributable to owners of the parent. For unincorporated businesses, the equivalent is owners' equity or partners' capital.
The figure includes contributed capital, such as common stock and paid-in capital, plus retained earnings and accumulated other comprehensive income, less any treasury stock. It is the denominator in return on equity and in the debt-to-equity ratio, and it is the basis for book value per share. Because it relies largely on historical cost accounting, shareholders' equity usually differs from the company's market capitalization, the value investors place on its shares.