Owner’s equity: definition, formula, how to calculate

Published Monday 26 October 2026

Table of contents

• What is owner's equity?
• Why owner's equity matters
• How to calculate owner's equity
• What's included in owner's equity?
• Owner's equity for sole proprietors vs private limited companies in Singapore
• 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 Xero
• FAQs on owner's equity

Key takeaways

• Calculate owner's equity by subtracting total liabilities from total assets to see your business's net worth at any point.
• Track your equity at least quarterly to measure growth and plan borrowing or investment with confidence.
• Lenders and investors use this figure to judge whether your business can handle debt and generate returns.
• Sole proprietors record equity in one capital account, while a private limited company splits it into share capital and retained earnings.

What is owner's equity?

Owner's equity is the book value, or net worth, of your business. It shows what your business is worth on paper after subtracting what you owe from what you own. For example, if you have a property project valued at S$500,000 with a loan of S$400,000, your owner's equity is S$100,000.

The price your business would sell for is set when you negotiate with a buyer, so it can differ from your equity. Owner's equity gives you a reliable figure you can calculate at any time.

Why owner's equity matters

Owner's equity shows the financial health of your business and plays a key role in major business decisions. Knowing it helps you:

• apply for loans, since lenders review equity to judge whether your business can handle debt
• measure growth by showing whether your business is building value over time
• set a starting point for negotiations when you're selling or bringing in partners
• attract investors, who look at equity to gauge risk and potential returns before committing funds

Understanding this number helps you make confident decisions about financing and growing your business.

How to calculate owner's equity

To calculate owner's equity, subtract your total liabilities from your total assets. Use current values from up-to-date records so the result reflects your real position.

Follow these steps to work out your figure:

1. Add up your total assets, including cash, equipment, inventory and accounts receivable.
2. Add up your total liabilities, such as loans, unpaid bills, wages owed and tax.
3. Subtract total liabilities from total assets.
4. Cross-check the result by rolling forward last period's equity, as shown below.

The formulas below show both ways to reach the same number.

Owner's equity formula

You can express owner's equity in two ways, and both should give you the same answer. The balance sheet formula looks at a single date:

Owner's equity = total assets − total liabilities

The roll-forward formula shows how your equity moved over a period, such as a financial year:

Closing equity = opening equity + capital introduced + net profit − drawings

Capital introduced is money you put into the business. Drawings are money or assets you take out for personal use. If the two formulas give different answers, check your records for a missing or misclassified item.

Here's how both formulas work for a real-world small business.

Worked example for a Singapore café

Say you run a café in Singapore as a sole proprietor. At the end of the financial year, your café's assets are:

• S$35,000 in cash and bank balances
• S$65,000 in kitchen equipment and furniture
• S$22,000 in shop fit-out
• S$8,000 in food and drink stock

That gives you total assets of S$130,000. On the same date, your café's liabilities are:

• S$38,000 left to repay on a bank loan
• S$5,000 in unpaid supplier bills
• S$3,000 in wages owed to staff
• S$2,000 on the business credit card

Total liabilities come to S$48,000. Using the balance sheet formula, your equity is S$130,000 − S$48,000 = S$82,000.

Now check that figure with the roll-forward formula. You started the year with S$60,000 in equity and put in S$10,000 of your savings to buy a second espresso machine. The café made S$48,000 in net profit, and you took S$36,000 in drawings.

Closing equity is S$60,000 + S$10,000 + S$48,000 − S$36,000 = S$82,000. Both methods give S$82,000, so your records reconcile.

What's included in owner's equity?

Owner's equity includes everything your business owns minus everything it owes. Your assets are what you own, such as:

• cash and bank balances
• accounts receivable (money customers owe you)
• inventory and stock
• equipment, vehicles and property
• intangible assets like trademarks or patents

Your liabilities are what you owe, such as:

• business loans and credit lines
• accounts payable (bills you haven't paid yet)
• wages owed to employees
• tax obligations

The difference between your total assets and total liabilities equals your owner's equity. How that figure is recorded depends on your business structure.

Owner's equity for sole proprietors vs private limited companies in Singapore

Many Singapore small businesses start as either a sole proprietorship or a private limited company (Pte Ltd). The structure you choose changes how your equity appears on the balance sheet.

If you run a business on your own as a sole proprietor, you and the business aren't separate legal entities. Your equity sits in a single capital account: opening capital plus capital introduced plus net profit, minus drawings.

A Pte Ltd is a separate legal entity owned by its shareholders. Its equity splits into share capital, which is the amount shareholders paid for their shares, and the profits a company keeps after paying dividends, known as retained earnings.

Think of a sole proprietor's capital account as one running balance. A company keeps two pots instead: what shareholders put in and what the business has earned and kept. Here's how the two structures compare:

• A sole proprietor records equity in one capital account, while a Pte Ltd splits it into share capital and retained earnings
• A sole proprietor takes money out as drawings, while a Pte Ltd pays shareholders dividends from retained earnings
• A sole proprietor adds funds as capital introduced, while a Pte Ltd usually issues new shares to raise equity
• A sole proprietor and the business are the same legal entity, while a Pte Ltd is legally separate from its shareholders

Knowing which structure applies helps you read your balance sheet correctly and explain your numbers to a lender or investor.

Examples of owner's equity

Here's a simple example of how owner's equity works.

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

Business example of owner's equity

The same logic applies to a small business. A repair shop owns a garage worth S$600,000, machinery worth S$50,000 and inventory worth S$50,000, giving total assets of S$700,000.

The shop owes S$300,000 on the premises. Owner's equity equals S$400,000 (S$700,000 − S$300,000).

Where to find owner's equity

Owner's equity appears on your balance sheet, listed after assets and liabilities. It's also tracked on the statement of changes in equity, which shows how your equity moves over time.

What is a statement of changes in equity?

A statement of changes in equity is one of the four main financial statements. The others are the profit and loss (P&L) statement, the balance sheet and the cash flow statement.

This statement connects your P&L and balance sheet, showing how the year's earnings and other transactions change your owner's equity. The layout follows the same logic for every business structure, but the lines change:

• for a sole proprietor, it shows one capital account, with net profit and capital introduced added and drawings deducted
• for a partnership, it shows a capital account for each partner, so you can see every partner's share of profit and drawings
• for a company, it shows share capital and retained earnings separately, with dividends deducted from retained earnings
• for any structure, the closing balance should match the equity figure on your balance sheet

Once you know what goes into the statement, you can decide how much attention to give it.

How the statement of changes in equity is used

The statement of changes in equity tracks how your business value shifts over time. For day-to-day decisions, your P&L and balance sheet usually give you more to act on.

Track your owner's equity with Xero

Owner's equity tells you what your business is worth on paper and how that value changes as you earn profit and draw money. Keeping it accurate helps you plan with confidence and talk to lenders with real numbers.

Xero keeps your balance sheet up to date with automated bank feeds, so you can check your equity anytime and share figures with your accountant. Try Xero today and get one month free.

FAQs on owner's equity

Still have questions about owner's equity? Here are answers to common questions.

Is shareholders' equity the same as owner's equity?

Yes, they mean the same thing. Sole proprietors and partnerships usually say owner's equity, while companies call it shareholders' equity.

How do I prepare an owner's equity statement?

List each movement for the period on its own line, such as net profit and drawings, so anyone reading it can see exactly what changed. Then check the closing figure against the equity shown on your balance sheet.

Can owner's equity be negative?

Yes, owner's equity is negative when your liabilities exceed your assets, often because of accumulated losses or heavy borrowing. Spotting it early gives you time to cut costs or pay down debt before you apply for a loan.

How often should I check my owner's equity?

Review your owner's equity at least quarterly, or monthly if your business is growing quickly or carrying a lot of debt. Accounting software like Xero updates your balance sheet as you reconcile transactions, so you can check it anytime.

What best describes owner's equity?

Owner's equity is what you'd have left if you sold everything your business owns and paid off all its debts. It's your stake in the business: the value you've built over time through profits and investment.