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

Updated on January 4, 2024
Article bySayantan Mukhopadhyay
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Shareholder Equity and Net Worth are two different terms that are often used interchangeably to represent the worth of a person left after paying all his liabilities. Still, both have a slight difference, where shareholder’s equity has a definite meaning and is relevant when there are multiple owners in the company. In contrast, net worth is a generic term that also includes individual worth.

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 discussing 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.

Shareholder equity can also be expressed as the difference between the company’s total assets and total liabilities. So, if a firm has total assets of $100,000 and 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 sharePreference ShareA preferred share is a share that enjoys priority in receiving dividends compared to common stock. The dividend rate can be fixed or floating depending upon the terms of the issue. Also, preferred stockholders generally do not enjoy voting rights. However, their claims are discharged before the shares of common stockholders at the time of liquidation.read more 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 a way. We will look at it in the next section.

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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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Shareholder Equity vs Net Worth Video Explanation

 

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 no other owners claim the money after paying off the debts.
  3. Shareholder equity can also be described as a total of equity capital, preferred capital, retained earnings, etc. On the other hand, net worth is the money one can keep or re-invest in building the business.
  4. Even if the concept of both of these is similar, it has a difference in context. Regarding shareholder equity, we are looking at the difference between total assets and total liabilities as capital for the company. On the other hand, in terms of net worth, we are looking at the difference that isn’t
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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 company with no separate identity from their organization (or, in other words, no other owners to claim the profits).
EquationShareholder equity can be calculated in two ways. The first way is to deduct the company’s total liabilities from the total assets. And the second way is to add all equity & preferred capital, reserves, and 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 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 shareholder’s valueValue 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. If the difference between the total assets and the total liabilities doesn’t match the shareholder equity, then the 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 is certainly an error.

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

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