How to Calculate Owner’s Equity

Owner's equity is, essentially, what a business owes to its owner or owners. The business owes the owner, on principle as it were, because the owner has invested in the business. The business also owes the owner for all gains made by the business. On the flip side of the equation, the owner(s) as investor(s) will also have to absorb losses by the business, so there is no guarantee at all that there will be owner's equity in a business, nor in what amount that equity may or may not present itself. The amount of owner's equity that is available depends entirely upon the successful or failing operation of the business. Steps: Calculate Business Equity 1. Calculate the sum total of your business assets. These include tangible goods owned by the business--such as office furniture, business machinery, inventory and real estate--as well as intangible assets. Examples of intangible business assets include: Copyrights or trademarks, favorable location, community awareness, long-term contracts and people. Remember to calculate the value of tangible business assets using their current worth, not their original purchase cost. Office furniture, for example, may decrease in value with age and use; real estate, if owned by your business, may appreciate or depreciate in value. 1. Calculate the total of your business liabilities. 2. Subtract the total of your business liabilities from yours business assets. If there's anything left, this amount is the equity of the business or the owner's equity. Since the owner must absorb the impact of business losses, the business may have liability -- debt -- instead of equity to pass on to the owner or owners. Calculate Owner's Equity 1. Divide the total business equity by the number of owners--if they all own equal shares in the company--or by the percentage each owner owns. The resulting figure is the owner's equity for each business owner. So if there are two equal owners in the business, each one's owner's equity would be half the total business equity. If there are two owners but one owns 60 percent of the company while the other owns 40 percent, the former's owner's equity would represent 60 percent of the business equity, while the latter's owner's equity would be the remaining 40 percent. originated by: WRM, BoldStepFixer, Wendy Weaver Source: www.wikihow.com