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

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Differences Between Shareholder Equity vs. Net Worth

The difference between shareholder equity and net worth 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 capital, 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 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

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

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 value.When we look at the difference between the total assets 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 sheet 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.