What is owner’s equity?

Owner’s equity is the owner’s share of a business after subtracting what the business owes from what it owns. In simple terms, it is the business’s net worth from the owner’s point of view.

Quick Scoop

The basic formula is: Owner’s equity = Assets - Liabilities

What it includes

  • Money the owner invested in the business.
  • Profits the business has earned and kept.
  • Money withdrawn by the owner reduces equity.

Why it matters

Owner’s equity helps show the financial health of a business. If equity is positive and growing, that usually means the business is adding value; if it is negative, liabilities are greater than assets, which can signal trouble.

Simple example

If a business has $100,000 in assets and $60,000 in liabilities, owner’s equity is $40,000. That $40,000 is the amount left for the owner after debts are accounted for.

Bottom line

Owner’s equity is basically what the owner truly owns in the business after all debts are paid.