Whether you’re a freelance tailor in Mumbai, a mobile repair shop owner in Delhi, or a tuition teacher in Kolkata, terms like equity or balance sheet can feel confusing or even intimidating. But don’t worry—many small business owners across India feel the same way.
The good news? Understanding company equity is simpler than you think. And more importantly, it’s one of the most powerful tools to measure the true value of your business.
Think of equity as what’s really yours—the money left in your pocket after all expenses are paid. It shows whether your business is actually creating wealth, not just running in circles.
In this easy-to-follow guide, you’ll learn:
- What company equity means for Indian small businesses
- How to calculate it with examples
- And how to use it to make smarter decisions for your future
- How Much of Your Business Do You Really Own?
What Is Company Equity? A Simple Explanation
Equity is the value of your business that you truly own after paying off everything you owe. It’s like checking what’s left in your wallet after settling all your debts.
In financial terms, equity is the difference between what your business owns (assets) and what it owes (liabilities).
Here’s the basic formula:
Equity = Total Assets – Total Liabilities
Let’s Break It Down with an Example
Imagine Priya, who runs a small event decorating business in Bangalore. Her business has:
- Assets: ₹3,00,000 worth of decorations, lighting equipment, and cash in her bank account.
- Liabilities: A ₹1,00,000 loan she took to buy extra supplies.
Her equity is: ₹3,00,000 (assets) – ₹1,00,000 (liabilities) = ₹2,00,000
This ₹2,00,000 is the value Priya truly owns in her business. If she sold everything today and paid off her loan, she’d walk away with ₹2 lakhs.
Even your personal assets, like a scooter or a house, have equity! If your scooter is worth ₹80,000 and you owe ₹20,000 on a loan for it, your scooter’s equity is ₹60,000.
Why Should You Care About Equity?
Knowing your equity answers big questions like:
- Is my business growing or losing value?
- If I close my company, how much money will I have left?
- Am I building something valuable for the future?
For small business owners, equity is like a report card—it shows if your efforts are creating real wealth.
How to Calculate Company Equity: Step-by-Step
Calculating equity is straightforward if you know what to look for.
Let’s break it down into simple steps, using the example of Anil, who owns a mobile repair business in Chennai.
Step 1: List Your Assets
Assets are everything your business owns that has value. This includes:
- Cash in your bank or cash box
- Equipment (like tools or machines)
- Inventory (like spare parts or products)
- Money customers owe you (receivables)
Anil’s Assets:
- Tools and machines: ₹1,50,000
- Spare parts (inventory): ₹50,000
- Bank balance: ₹1,00,000
- Total Assets: ₹3,00,000
Step 2: List Your Liabilities
Liabilities are everything your business owes, such as:
- Loans (bank or personal)
- Unpaid bills (rent, electricity, suppliers)
- Taxes you haven’t paid yet
Anil’s Liabilities:
- Bank loan: ₹80,000
- Unpaid rent: ₹20,000
- Total Liabilities: ₹1,00,000
Step 3: Calculate Equity
Subtract your total liabilities from your total assets.
Equity = ₹3,00,000 (assets) – ₹1,00,000 (liabilities) = ₹2,00,000
Anil’s business is worth ₹2,00,000. That’s the value he’s built so far!
Keep a simple notebook or Excel sheet to track your own personal assets and liabilities. Even a rough list helps you calculate your personal equity without needing fancy software.
Understanding the Parts of Equity
Equity isn’t just one number—it’s made up of two main parts: Share Capital and Retained Earnings. Let’s explore these with examples.
Share Capital: Your Investment in the Business
This is the money you (or any partners) put into the business to get it started. It’s like the seed you plant to grow a tree.
Example: Neha, a tuition teacher in Hyderabad, invested ₹1,00,000 from her savings to buy desks and a projector for her classes. That’s her share capital. If her cousin joins and adds ₹50,000, their total share capital becomes ₹1,50,000. Same logic is applicable to a company.
Retained Earnings: Your Business’s Savings
Retained earnings are the profits you’ve earned but didn’t take out of the business. Instead, you reinvest them to grow.
Example: Sanjay, who runs a small bakery in Pune, made ₹60,000 in profit last year. He used ₹20,000 to buy a new oven, leaving that amount in the business. That ₹20,000 is his retained earnings.
Growing retained earnings is a sign your business is healthy. It means you’re not just surviving—you’re saving and reinvesting for the future.
Another Way to Look at Equity
For some businesses, equity can also be calculated as:
Equity = Share Capital + Retained Earnings
But for beginners, the Assets – Liabilities formula is easier and works just as well.
Using a Balance Sheet to Find Equity
A balance sheet is like a financial selfie of your business—it shows what you own, what you owe, and what’s left (equity) at a specific moment.
How to Create a Simple Balance Sheet
You don’t need to be an accountant to make one. Here’s how Ritu, who runs an online handmade jewelry business, does it:
Ritu’s Balance Sheet (March 2025)
Assets:
- Jewelry stock: ₹2,00,000
- Bank balance: ₹1,50,000
- Total Assets: ₹3,50,000
Liabilities:
- Loan: ₹1,00,000
- Unpaid supplier bills: ₹50,000
- Total Liabilities: ₹1,50,000
Equity:
- ₹3,50,000 – ₹1,50,000 = ₹2,00,000
Ritu’s business is worth ₹2,00,000.
This simple balance sheet helps her see her financial health clearly.
If you don’t have a formal balance sheet, write down your assets and liabilities on paper or in a spreadsheet. It takes 10 minutes and gives you clarity.
What Positive and Negative Equity Tell You
Once you calculate equity, the number tells a story about your business’s health.
Positive Equity: You’re in Good Shape!
If your assets are worth more than your liabilities, you have positive equity. This means your business is financially healthy.
Example: Vikram, who runs a small manufacturing unit in Ahmedabad, has ₹5,00,000 in assets (machines, raw materials, cash) and ₹2,00,000 in liabilities (loans, unpaid bills). His equity is ₹3,00,000—a great sign!
Negative Equity: A Warning Sign
If your liabilities are more than your assets, you have negative equity. This means your business owes more than it owns, which can be risky.
Example: Meena, a freelance event decorator in Jaipur, has ₹2,00,000 in assets but ₹2,50,000 in debts. Her equity is –₹50,000. She needs to take action to reduce debts or increase assets.
Negative equity doesn’t always mean your business is doomed. Many Indian startups have negative equity in their early years but grow with a solid plan.
Positive equity makes it easier to get loans or attract investors. Negative equity signals you need to cut costs, boost sales, or rethink your strategy.
Where to Find Equity Information
How you find equity data depends on whether you’re looking at your own business or a public company.
For Your Own Business (Private Companies)
List your assets and liabilities, like we did for Ritu or Anil.
If you’re a registered private company, you must maintain a balance sheet as per the Companies Act, 2013. You can also check financials on the Ministry of Corporate Affairs (MCA) website at mca.gov.in using the View Public Documents feature (small fee applies).
For Public Companies
If you’re researching listed companies, visit:
- Company’s official website (look for Investor Relations section)
- Financial portals, NSE India, or BSE India
- Look for Shareholders’ Equity or Net Worth in their balance sheet
Example: A public company might show:
- Total Assets: ₹1,00,000 crore
- Total Liabilities: ₹40,000 crore
- Equity: ₹60,000 crore
Use equity data to decide if a company is worth investing in. Strong equity means stability!
Why Equity Matters to You, Investors, and Lenders
Equity isn’t just a number—it’s a story of your business’s strength. Here’s why it matters:
For You
Equity shows if you’re building wealth. For example, if your equity grows from ₹1,00,000 to ₹1,50,000 in a year, your business is on the right track.
For Investors
Investors look at equity to see:
- How much you’ve invested in your business
- If you’re reinvesting profits
- Whether your business is stable
For Lenders
Banks check your equity to decide if you’re a safe bet for a loan. Higher equity means better loan terms.
Measuring Success with Return on Equity (ROE)
ROE shows how well your business uses its equity to make profits. The formula is:
ROE = Net Profit ÷ Equity
Example: Sunita, a local bakery owner in Mumbai, has ₹2,00,000 in equity and earns ₹40,000 in profit yearly. Her ROE is:
₹40,000 ÷ ₹2,00,000 = 20%
This means for every ₹100 of equity, she earns ₹20 in profit—a healthy sign!
An ROE of 15% or higher is a good benchmark for small businesses. It shows you’re managing your money well.
Different Types of Equity in Everyday Life
Equity isn’t just for businesses. It shows up in other areas too:
- Home Equity: This is the value of your home minus any loans you owe on it. Example: Arjun’s house in Coimbatore is worth ₹50,00,000, with a ₹20,00,000 home loan. His home equity is ₹30,00,000. He can use this for a loan against property to fund his business.
- Brand Equity: This is the value of your brand’s reputation. For example, customers might pay more for a well-known local bakery’s cakes because of its trusted name.
- Stock Equity: If you own shares in a well known listed company, that’s your stock equity. Its value grows as the company grows.
- Private Equity: This is money invested in private businesses, like a startup or family business, often by venture capital firms.
Did You Know? Indian brands like Amul or Tanishq have strong brand equity, which lets them charge more than competitors.
Conclusion
Understanding how to calculate company equity in India is like reading your business’s growth chart. Whether you’re selling handmade crafts online or running a repair shop from your garage, knowing your equity empowers you to make confident, smart decisions.
Start today:
- Make a list of your business assets and debts.
- Calculate your equity.
- Track it regularly to measure growth.
Frequently Asked Questions About Company Equity
This FAQ is here to break things down into simple, relatable answers. These are some of the most common questions people ask when they begin their journey into business finance—so explore with confidence!
What exactly is company equity, and why should I care?
Company equity is the value of what you truly own in your business after paying off all your debts.
Think of it like this: if you sold everything your business owns (tools, stock, cash) and paid back all your loans, whatever is left is your equity.
For example, if a home baker in Surat has ovens and ingredients worth ₹1,00,000 and owes ₹30,000 in bills, her equity is ₹70,000.
Equity shows whether your business is actually building wealth or just running on borrowed money. It’s your financial safety net.
I run a small business from home. Do I still need to calculate equity?
Yes, absolutely!
Whether you’re a freelance graphic designer in Bengaluru or run a tuition class in Patna, knowing your company equity helps you understand your real financial position.
It’s not about being big or small—it’s about being smart.
Even a simple list of what you own (laptop, bank balance) minus what you owe (loan, rent dues) gives you a clear picture of your equity.
What if my equity is negative—should I panic?
Not always—but it’s a sign you need to pay attention.
Negative equity means your debts are more than your assets.
It doesn’t mean your business is failing, but it could become risky if not corrected.
For example, if your total assets are ₹2,00,000 but you owe ₹2,50,000, your equity is –₹50,000.
Try to reduce expenses, increase savings, or repay some debts to bring equity back to positive. Many Indian startups run with negative equity in the early years—it’s okay if there’s a growth plan.
Where can I find equity information if I want to invest in a company?
If it’s a publicly listed company, you can find equity details on financial websites, NSE India, or in the company’s annual report under the balance sheet section.
Look for the term “Shareholders’ Equity” or “Net Worth”.
If it’s a private company, you’ll need to request their financials or estimate based on their assets and debts.
Private limited company’s financial statements and audit reports are also available on the MCA (Ministry of Corporate Affairs) website (for a small fee).
How is equity different from profit? Aren’t they the same thing?
No, they’re not the same!
Profit is what you earn in a specific period, like a month or a year.
Equity is your business’s overall financial value—built over time.
Let’s say Ankit, who runs a laptop repair service in Delhi, earns ₹40,000 profit this month. But his equity includes all his tools, cash, and past savings minus any debts. So, even if his profit is low one month, his equity could still be high because of previous savings and assets.
