How Do You Calculate Total Equity?
Calculate total equity by subtracting total liabilities or debt from total assets. Because it takes liability into account, total equity is often thought of as a good measure of a company's worth.
Equity is the total value of an entity, most often a company. Here are the steps to calculate it:
- Determine the company's total assets. This can mean tangible assets that include items such as buildings or equipment or intangible items such as brands and patents.
- Determine the company's total liabilities, that is, debts and other financial obligations.
- Subtract the value of liabilities from the value of assets. This gives you the total equity.
According to Forbes, total equity is an excellent metric to use when judging the financial health of an entity. Aside from its use in finance, total equity is often used to determine a homeowner's financial stake in their property.