1. What is Equity?

Equity represents the residual value to shareholders or owners after all liabilities have been paid off. It's a key measure of financial health for both companies and individuals.

2. How Does the Calculator Work?

The calculator uses the fundamental accounting equation:

Where:

• \( Total\ Assets \) — Everything owned that has value (cash, property, inventory, etc.)
• \( Total\ Liabilities \) — All debts and obligations owed

Explanation: This simple formula shows what would remain if all assets were liquidated and all debts paid.

3. Importance of Equity Calculation

Details: Equity is crucial for assessing financial health, determining net worth, evaluating business value, and making investment decisions.

4. Using the Calculator

Tips: Enter total assets and total liabilities in dollars. Both values must be positive numbers. The calculator will show the resulting equity.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between positive and negative equity?
A: Positive equity means assets exceed liabilities. Negative equity (deficit) means liabilities exceed assets, indicating potential financial trouble.

Q2: How often should equity be calculated?
A: Businesses typically calculate it quarterly. Individuals might calculate it annually or when making major financial decisions.

Q3: Does equity equal cash?
A: No. Equity represents net worth but may be tied up in non-cash assets like property or equipment.

Q4: What's shareholders' equity vs. owner's equity?
A: Same concept - shareholders' equity refers to corporations, owner's equity to sole proprietorships/partnerships.

Q5: Can equity be negative?
A: Yes, when liabilities exceed assets. This is called "negative equity" or "deficit."