1. What is Owner's Equity?

Owner's equity represents the residual interest in the assets of a business after deducting liabilities and loans. It shows what the business owner truly owns outright.

2. How Does the Calculator Work?

The calculator uses the owner's equity formula:

Where:

• \( Assets \) — Total value of all owned resources (currency)
• \( Liabilities \) — Total debts and obligations (currency)
• \( Loan \) — Outstanding loan amount (currency)

Explanation: The formula calculates what remains for the owner after all debts and loans are paid from the assets.

3. Importance of Equity Calculation

Details: Calculating owner's equity is crucial for understanding business financial health, securing financing, and making informed business decisions.

4. Using the Calculator

Tips: Enter all values in the same currency. Assets should include all valuable resources, liabilities all debts, and loans any outstanding borrowed amounts.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between equity and net worth?
A: Owner's equity is specifically for businesses, while net worth is for individuals, though they represent similar concepts.

Q2: Can equity be negative?
A: Yes, negative equity occurs when liabilities and loans exceed assets, indicating financial trouble.

Q3: How often should equity be calculated?
A: For businesses, it should be calculated at least quarterly with financial statements.

Q4: Does equity include personal assets?
A: Only for sole proprietorships. Corporations keep business and personal assets separate.

Q5: How does taking a loan affect equity?
A: Loans increase liabilities, which decreases equity unless the loan is used to acquire assets that appreciate in value.