Definition

Shareholder Equity is a line item on a balance sheet and is the amount that shareholders could expect to be returned to them in the event that all assets were sold and all company debts were paid in full.

Calculation

Shareholder Equity = total assets - total liabilities

Why it is important

Whether a company's shareholder equity is positive or negative tells investors if a company is able to pay all of its debts or not. A company with a negative shareholder equity can be seen as a risky investment and an indicator/factor that a company financial health is not sound.