Equity

Stockholders' or Owners' Equity is the portion of the balance sheet that represents the capital received from investors in exchange for stock (paid-in capital), donated capital and retained earnings. Stockholders' equity represents the equity stake currently held on the books by a firm's equity investors.

It is calculated either as a firm's

${\text{Total Assets}}-{\text{Total Liabilities}}$

or as

${\text{Share Capital}}+{\text{Retained Earnings}}-{\text{Treasury Shares}}$

Stockholders' equity is often referred to as the book value of the company, and it comes from two main sources.

1. The first and original source is the money that was originally invested in the company, along with any additional investments made thereafter.
2. The second comes from retained earnings that the company is able to accumulate over time through its operations. In most cases, especially when dealing with older companies that have been in business for many years, the retained earnings portion is the largest component.