It is not uncommon for shareholders' equity and net worth to be used interchangeably on unaudited balance sheets of smaller companies. However, net worth is a more general term that also can be used to describe an individual's personal wealth. Also, partnership financial statements are more likely to use the term "net worth" than are corporations.
Understanding Shareholders' Equity
Shareholders' equity appears on a company's balance sheet -- a financial statement that summarizes the company's financial position as of a given date, typically the end of a fiscal quarter or year. Shareholders' equity and net worth both can be calculated by subtracting a company's total liabilities from its total assets.
Shareholders' equity also is calculated by taking the sum of the par value of common and preferred shares issued and outstanding, additional paid-in capital, and retained earnings. Additional paid-in capital refers to the proceeds from a stock issuance in excess of the stock's par value, which is an arbitrarily set figure with little significance. Retained earnings is equal to the cumulative net income a company has earned throughout its operating history less any payments for dividends made to shareholders.
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