Shareholder Equity vs Net Worth | Top 5 Differences You Must Know!

Shareholder Equity and Net Worth are two different terms which many times is used interchangeably to represent worth of a person left after paying all his liabilities but both having the slight difference between each other where shareholder’s equity have the definite meaning and is relevant when there are multiple owners in the company whereas the net worth is generic term which includes individual worth as well.

Differences Between Shareholder Equity vs. Net Worth

The difference between shareholder equityShareholder EquityShareholder’s equity is the residual interest of the shareholders in the company and is calculated as the difference between Assets and Liabilities. The Shareholders' Equity Statement on the balance sheet details the change in the value of shareholder's equity from the beginning to the end of an accounting period.read more and net worthNet WorthThe company's net worth can be calculated using two methods: the first is to subtract total liabilities from total assets, and the second is to add the company's share capital (both equity and preference) as well as reserves and surplus.read more is so slight that we don’t even notice it. But there’s a difference between shareholder equity and net worth.

When we talk about shareholder equity, we look at a company and, more specifically, a company’s balance sheet. There are three main components of a balance sheet – assets, liabilities, and shareholder equity.

The shareholder equity can also be expressed as the difference between the total assets and the total liabilities of the company. So, let’s say that a firm has total assets of $100,000 and the total liabilities of $70,000, the shareholder equity would be $30,000.

Now, the question is what shareholder equity includes? Shareholder equity consists of equity share capitalShare CapitalShare capital refers to the funds raised by an organization by issuing the company's initial public offerings, common shares or preference stocks to the public. It appears as the owner's or shareholders' equity on the corporate balance sheet's liability side.read more, preference share capital (both the par value and the additional paid-in capital), retained earnings (earnings that are not paid out to the shareholders as dividends), etc.

The reason we confuse the “net worth” with the “shareholder equity” is because even “net worth” can be calculated by deducting the total liabilities from the total assets.

But there is one slight difference between shareholder equity and net worth. When we talk about net worth, we mean the individual entity, and when we talk about shareholder equity, we mean to talk about a firm.

So, how would you understand the difference between shareholder equity and net worth? It turns out that there’s away. We will look at it in the next section.
Shareholder-Equity-vs-Net-Worth

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Shareholder Equity vs. Net Worth Infographics

Below, infographics detail the differences between shareholder’s equity vs. net worth.

Shareholder Equity vs Net Worth

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Key Differences Between Shareholder Equity vs. Net Worth

Here are key differences between shareholder equity and net worth –

  1. Shareholder equity is a specific term that describes how much the owners have after paying off the total liabilities. On the other hand, net worth is a generic term that describes what a company/individual can keep after paying off its/his liabilities.
  2. When we talk about shareholder equity, there are owners other than the person who has founded the company. When we talk about net worth, there is only one person (or few), and there are no other owners claiming the money after paying off the debts.
  3. Shareholder equity can also be described as a sum-total of equity capital, preferred capital, retained earnings, etc. Net worth, on the other hand, is the money one can keep or re-invest for building the business.
  4. Even if the concept of both of these is similar, it has a difference in the context. In terms of shareholder equity, we are looking at the difference between total assets and total liabilities as a capital for the company. On the other hand, in terms of net worth, we are looking at the difference that isn’t

Head to Head Differences Between Shareholder Equity vs. Net Worth

Here are the topmost differences between shareholder equity and net worth –

The basis for Comparison between Shareholders Equity vs. Net WorthShareholder EquityNet Worth
MeaningShareholder equity can be defined as the statement of an organization that includes equity & preferred capital, retained earnings, reserves, etc.Net worth is how much a company/an individual has after paying off the liabilities.
TermShareholder equity has a definite meaning.Net worth is a generic term.
Related toShareholder equity is relevant when the company has multiple owners.Net worth is relevant when we are only talking about an individual or a company that has no separate identity from his/her organization (or, in other terms, no other owners to claim the profits).
EquationShareholder equity can be calculated in two ways. The first way is to deduct the total liabilities of the company from the total assets. And the second way is to add up all equity & preferred capital, reserves, retained earnings.Calculating net worth is quite similar to shareholder equity. Here we need to pay heed to the difference between the total assets and the total liabilities.
How do we look at the difference?When we look at the difference between the total assets and the total liabilities in terms of the shareholder, it would be the consideration that will eventually maximize the value of the shareholdersValue Of The ShareholdersShareholder's value is the value that company shareholders receive as dividends and stock price appreciation due to better decision-making by the management that ultimately results in a company's growth in sales and profit.read more.When we look at the difference between the total assetsTotal AssetsTotal Assets is the sum of a company's current and noncurrent assets. Total assets also equals to the sum of total liabilities and total shareholder funds. Total Assets = Liabilities + Shareholder Equityread more and the total liabilities in terms of net worth, we know that it’s what the individual can keep or the firm can keep/invest.

Shareholder Equity vs. Net Worth – Conclusion

In general, there’s no difference between shareholder equity vs. net worth. It’s because, if the difference between the total assets and the total liabilities don’t match with the shareholder equity, then there is certainly an error in the balance sheetThe Balance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read more.

However, there’s a difference in the context of how we understand shareholder equity and net worth. Net worth means when a person has some assets left after paying off all his debts. But for a company, it shows how much owners’ investments are untouched after paying off the total liabilities.

Shareholder Equity vs. Net Worth Video

 

This has been a guide to differences between Shareholders Equity vs. Net worth. Here we discuss the top differences between the two along with infographics, comparison table, and practical examples. You can also refer to our recommended Accounting Articles below –