Equity is the value attributable to the owners of a business. The book value of equity is calculated as the difference between assets and liabilities on the company’s balance sheet, while the market value of equity is based on the current share price (if public) or a value that is determined by investors or valuation professionals. The account can also be called shareholders/owners/stockholders equity or net worth.
The following formulas can be used to calculate the book value and market value of equity:
- Book value: Assets – Liabilities
- Market value: Share price x #Shares
In reality, the value of equity is calculated in a much more detailed way and is a function of the following accounts:
- Share capital
- Contributed surplus
- Retained earnings
- Net income (loss)
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