1. What is Equity?

Equity represents the residual interest in the assets of an entity after deducting liabilities. It's a fundamental concept in accounting and finance that shows what remains for owners after all debts are paid.

2. How Does the Calculator Work?

The calculator uses the basic accounting equation:

Where:

• \( Assets \) — Total resources owned (cash, property, inventory, etc.)
• \( Liabilities \) — Total debts and obligations
• \( Equity \) — Owner's residual claim on assets

Explanation: This equation must always balance (Assets = Liabilities + Equity), forming the foundation of double-entry accounting.

3. Importance of Equity Calculation

Details: Equity calculation is essential for financial health assessment, loan applications, investment decisions, and business valuation. It shows the net worth of an individual or company.

4. Using the Calculator

Tips: Enter all amounts in USD. Assets and liabilities should be positive numbers. The calculator will automatically compute the equity (net worth).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between equity and net worth?
A: They're essentially the same - both represent assets minus liabilities. "Equity" is typically used in business contexts, while "net worth" is used for individuals.

Q2: Can equity be negative?
A: Yes, when liabilities exceed assets. This indicates financial distress and is called "negative equity" or "deficit."

Q3: How often should I calculate my equity?
A: Businesses typically calculate it quarterly or annually. Individuals might calculate it annually or when making major financial decisions.

Q4: What's included in assets and liabilities?
A: Assets include cash, investments, property, vehicles, etc. Liabilities include loans, mortgages, credit card debt, and other obligations.

Q5: Why is equity important for businesses?
A: It shows the company's book value, affects borrowing capacity, and represents what shareholders would receive if assets were liquidated.