Owner’s equity: what it is and how to calculate it

Published Tuesday 21 April 2026

Table of contents

• What is owner's equity?
• How to calculate owner's equity (or net worth)
• What's included in owner's equity?
• Examples of owner's equity
• Where to find owner's equity
• What is a statement of owner's equity?
• Track your business equity with confidence
• FAQs on owner's equity

Key takeaways

• Calculate your owner's equity by subtracting your total liabilities from your total assets to find out your business's true net worth at any point in time.
• Use a statement of owner's equity to track how profits, losses, investments, and withdrawals change your ownership value over a specific period.
• Recognize that negative owner's equity, where liabilities exceed assets, signals financial trouble and may require you to reduce debt, increase revenue, or add more capital.
• Monitor your owner's equity regularly to make smarter decisions about business growth, loan applications, and long-term planning.

Key takeaways

• Calculate owner's equity by subtracting total liabilities from total assets. This determines your company's true net worth at any point in time.
• Track changes in your ownership value using a statement of owner's equity, which shows how profits, losses, investments, and withdrawals affect your business equity over a specific period.
• Recognize that owner's equity appears on your balance sheet in the equity section and connects your other financial statements by showing how net income impacts your ownership value.
• Monitor your owner's equity regularly to assess your business's financial health and make informed decisions about growth, investments, and operational changes.

What is owner's equity?

Owner's equity is the dollar amount left after subtracting what you owe from what you own. It represents your business's net worth or book value at any point in time.

This differs from market value, which reflects what a buyer would actually pay for your business.

How to calculate owner's equity (or net worth)

Owner's equity equals your total business assets minus your total business liabilities.

Formula: Assets - Liabilities = Owner's equity

Add up everything your business owns, subtract everything it owes, and the remainder is your equity.

Here's the formula you can use.

Owner's equity formula

Use this simple formula to work out your owner's equity at any point in time.

What's included in owner's equity?

Owner's equity consists of two main components: assets and liabilities. Here's what each includes.

Assets

Assets are everything your business owns that has value. Common examples include:

• Cash and bank accounts: Money available for operations
• Accounts receivable: Money customers owe you
• Inventory: Products ready for sale
• Equipment and real estate: Physical property and machinery
• Intangible assets: Brand value, patents, and intellectual property

Liabilities

Liabilities are what your business owes to others, which technically includes any obligation to transfer assets or a variable number of shares (as defined in the FASB Conceptual Framework). Common examples include:

• Loans: Money borrowed from banks or lenders
• Accounts payable: Bills owed to suppliers
• Payroll obligations: Wages owed to employees
• Tax obligations: Amounts owed to tax authorities

Examples of owner's equity

Personal example of owner's equity

If you own a house worth $300,000 with a $120,000 mortgage:

• Asset: $300,000 (house value)
• Liability: $120,000 (mortgage debt)
• Your equity: $180,000 ($300,000 - $120,000)

Business example of owner's equity

A repair shop calculates its owner's equity:

• Total assets: $700,000 ($600,000 garage + $50,000 machinery + $50,000 inventory)
• Total liabilities: $300,000 (premises loan)
• Owner's equity: $400,000 ($700,000 - $300,000)

Where to find owner's equity

You can find your owner's equity figure in two key financial reports:

• Balance sheet: Listed in the equity section, below assets and liabilities
• Statement of owner's equity: Shows how your equity changed during a specific period

What is a statement of owner's equity?

A statement of owner's equity tracks changes in your business ownership value over a specific period. It connects your other financial statements by showing how profits and losses affect your ownership stake.

The statement takes net income from your income statement and shows how it increases the equity reported on your balance sheet. It's one of four essential financial statements:

• Income statement: Shows revenue and expenses
• Balance sheet: Lists assets, liabilities, and equity
• Cash flow statement: Tracks money in and out
• Statement of owner's equity: Shows equity changes

How to use the statement of owner's equity

Most small business owners focus on these statements for day-to-day decisions:

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

• Income statement: Shows if you're profitable
• Balance sheet: Shows your financial position
• Statement of owner's equity: Tracks ownership changes but offers limited operational insights

The statement of owner's equity is most useful when you're assessing long-term business growth, preparing for a loan application, or planning an exit strategy.

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

The following example shows how closing equity equals opening equity plus net profit, minus owner withdrawals and taxes.

Example of statement of owner's equity for sole proprietor

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

The following example shows how closing equity equals opening equity plus net profit and money introduced, minus owner withdrawals and taxes.

Example of statement of owner's equity for a general partnership

The following example shows how closing equity equals opening equity plus net profit and new capital introduced, minus partner withdrawals and taxes.

Track your business equity with confidence

Understanding your owner's equity helps you assess your business's financial health. Xero makes it easy to track your assets and liabilities in real time, giving you a clear view of your net worth whenever you need it.

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FAQs on owner's equity

Here are answers to some common questions about owner's equity.

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

Yes, shareholder's equity and owner's equity describe the same concept with different names:

• Sole proprietorships and partnerships: Use "owner's equity"
• Corporations: Use "shareholder's equity" or "stockholder's equity"

Both measure the ownership value in the business and represent an equity interest (as defined in the FASB Conceptual Framework) that can include contracts permitting the holder to acquire a fixed number of equity instruments.

How do I prepare a statement of owner's equity?

Calculate your owner's equity statement by tracking changes in business worth over a specific period:

1. Start with opening equity: Use the previous period's ending balance.
2. Add increases: Include net income and additional investments.
3. Subtract decreases: Deduct losses and owner withdrawals.
4. Calculate closing equity: Determine your new ownership value.

Preparing this statement requires accurate balance sheet data. The final number shows whether your ownership stake grew or shrank during the period.

Do all transactions affect the owner's equity?

Most business transactions affect owner's equity either directly or indirectly.

Some transactions increase your equity. These include:

• Sales revenue: Adds to cash or accounts receivable
• Owner investment: Adds money to the business

Other transactions decrease your equity. These include:

• Expenses: Reduce cash or increase liabilities
• Owner withdrawals: Remove money from the business. Equity is reduced when the liability to owners is incurred, not just when the liability is settled (see the FASB Conceptual Framework)

Can owner's equity be negative?

Yes, owner's equity can be negative. This happens when your total liabilities exceed your total assets, meaning you owe more than your business owns.

Negative equity often signals financial trouble. You may need to reduce debt, increase revenue, or inject additional capital.

Is owner's equity the same as profit?

No, owner's equity and profit are different. Profit (or net income) measures how much money your business earned during a specific period after expenses. Owner's equity measures your total ownership stake in the business at a point in time. Profit increases your owner's equity, but equity also includes your original investment and any additional capital you've added.