What is owner's equity and how do you calculate it?

Published Friday 20 March 2026

Table of contents

• What is owner's equity?
• How to calculate owner's equity
• Examples of owner's equity
• Where to find owner's equity
• What is a statement of changes in equity?
• Track your owner's equity with confidence
• FAQs on owner's equity

Key takeaways

• Calculate your owner's equity by subtracting all business liabilities from total assets to determine your true business ownership value at any point in time.
• Track owner's equity changes through the statement of changes in equity, which shows how profits, losses, owner withdrawals, and new investments affect your business's net worth over time.
• Use owner's equity as a key indicator of financial health when applying for loans, attracting investors, or preparing to sell your business, as it demonstrates whether you're building wealth or losing ground.
• Monitor your equity regularly through cloud accounting software that automatically calculates assets, liabilities, and equity as you record transactions, giving you real-time insight into your business's financial progress.

What is owner's equity?

Owner's equity is the portion of your business you actually own after paying off all debts. It's defined as the residual interest in the assets of a business after deducting all liabilities, according to CPA Canada. It represents your business's book value, or net worth, which you can calculate at any time.

This number matters because it shows whether your business is building wealth or losing ground. Lenders, investors, and potential buyers all look at owner's equity to assess your financial health.

Owner's equity gives you a starting point for valuation, though it differs from liquidation value, as CPA Canada notes. That depends on negotiations and other factors, like assets selling for more or less than their carrying amount. But it gives you a reliable starting point for understanding your business's true value.

How to calculate owner's equity

Calculating owner's equity requires one simple formula: subtract what you owe from what you own.

Add up all your business assets, then subtract all your liabilities. The remaining amount is your owner's equity.

Use this formula to calculate your owner's equity:

Owner's equity formula

Getting an accurate equity figure means counting all your assets and liabilities correctly.

What's included in owner's equity

Assets are everything your business owns that has value:

• Cash: money in bank accounts
• Accounts receivable: money customers owe you
• Inventory: products you have in stock
• Equipment: machinery, computers, and tools
• Real estate: property and buildings
• Intangible assets: intellectual property, trademarks, and brand value

Liabilities are everything your business owes:

• Loans: money owed to banks or lenders
• Accounts payable: money owed to suppliers
• Wages payable: money owed to employees
• Tax obligations: money owed to tax authorities

Examples of owner's equity

If you own a house worth $300,000 but have a $120,000 mortgage, your equity is $180,000. The house is your asset, the mortgage is your liability, and the difference is what you actually own.

Business example of owner's equity

A repair shop has:

• Assets: $600,000 garage + $50,000 machinery + $50,000 inventory = $700,000 total
• Liabilities: $300,000 owed on the premises
• Owner's equity: $700,000 − $300,000 = $400,000

Where to find owner's equity

Owner's equity appears in two places in your financial statements.

On your balance sheet, you'll find it listed after the assets and liabilities sections. This shows your equity at a specific point in time, though these statements are often issued sometime after the report date, as CPA Canada notes, due to the work involved in their preparation.

On your statement of changes in equity, you'll see how your equity has increased or decreased over a period. This connects your profits and losses to your overall business value.

What is a statement of changes in equity?

A statement of changes in equity shows how your business's net worth changed over a specific period. It's one of four basic financial statements. The others are:

• Income statement
• Balance sheet
• Cash flow statement

This statement connects your income statement to your balance sheet by providing information on the sources of this "residual interest," as explained in CPA Canada's guide to reading financial statements. It shows how profits and losses from operations, owner withdrawals, and new investments from capital providers affected your equity during the year.

This statement shows closing equity is equal to the opening equity plus the year's net profit, minus owner withdrawals and taxes.

Example of statement of changes in equity for sole proprietor

Statement shows closing equity is equal to the opening equity plus the year’s net profit, minus owner withdrawals and taxes.

This statement shows closing equity is equal to the opening equity plus the year's net profit and money introduced, minus owner withdrawals and taxes.

Example of statement of changes in equity for a partnership

Statement shows closing equity is equal to the opening equity plus the year’s net profit and money introduced, minus owner withdrawals and taxes.

This statement shows closing equity is equal to the opening equity plus the year's net profit and money from investors, minus owner withdrawals and taxes.

Example of statement of changes in equity for a company

Statement shows closing equity is equal to the opening equity plus the year’s net profit and money from investors, minus owner withdrawals and taxes.

Most small business owners focus on the income statement and balance sheet for day-to-day decisions. These show your profits and current financial position in more detail.

How the statement of changes in equity is used

The statement of changes in equity becomes more useful when you're preparing for a loan application, bringing in investors, or planning to sell your business. That's when tracking how your equity has grown over time really matters.

Track your owner's equity with confidence

Understanding your owner's equity helps you make smarter decisions about your business. You'll know whether you're building wealth, when you can afford to invest in growth, and what your business might be worth if you decide to sell.

Your equity changes constantly as you earn revenue, pay expenses, take out loans, and withdraw profits. Tracking these movements gives you a clear picture of your financial progress over time.

You can track this easily with cloud accounting software, which automatically calculates your assets, liabilities, and equity as you record transactions. You'll always know where your business stands. Get one month free to track your owner's equity with confidence.

FAQs on owner's equity

Here are answers to common questions about owner's equity and how it applies to your business.

Is shareholder's equity the same thing as owner's equity?

Yes, they mean the same thing. Sole proprietors and partnerships typically use "owner's equity," while corporations call it "shareholder's equity."

How do I calculate the owner's equity statement?

The statement of changes in equity starts with your opening equity balance, adds profits and new investments, then subtracts withdrawals and losses. The result is your closing equity balance. Your accounting software can generate this statement automatically from your recorded transactions.

Do all transactions affect the owner's equity?

Most transactions affect your owner's equity, sometimes directly and sometimes indirectly. Sales increase your assets, expenses reduce them, and taking on debt increases your liabilities. All of these change the equity calculation.

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