Equity is the residual between a company’s recognized assets and liabilities. It reflects the owners’ interest in the accounting valuation of resources, but it does not promise a specific amount on a business sale or liquidation. Equity may include owners’ contributions, retained earnings and other components.
Calculation example
If a hypothetical balance sheet contains assets of 900 thousand roubles and liabilities of 500 thousand, equity is 400 thousand roubles. This is an accounting equality, not a valuation of the shares. If some assets are overstated and are impaired, equity decreases without an immediate cash payment.
What equity is not
Equity should not be confused with the cash balance in a bank account or with share capital. A company may have substantial equity invested in buildings and equipment while lacking cash. An investor considers its composition, the stability of profit and the reasons for changes from one period to the next. Related reading: [balance sheet](/guides/balance-sheet/), [return on equity](/glossary/roe/) and [price-to-book ratio](/glossary/pb/).
General financial concepts; not an individual recommendation under Russian jurisdiction.
Source reference and links retained: term-framework, /guides/balance-sheet/, /glossary/roe/ and /glossary/pb/; residual interest, recognized assets, liabilities, owners’ contributions, retained earnings, 900 thousand roubles, 500 thousand roubles, 400 thousand roubles, impairment, cash, buildings, equipment and period-to-period analysis caveats preserved.
Educational material is not individual investment, legal or tax advice.
