a. An accounting measure? Owners’ equity represents the amount of a company’s assets not offset by liabilities, hence owned by the firm’s investors. Mathematically, owners’ equity equals assets minus liabilities.
b. A legal concept? Owners’ equity represents the legal ownership of the business, the investment of those with the authority to hire (or be) the firm’s management and set company policy.
c. An investment concept? Owners’ equity identifies that some people have contributed money to the firm and represents one measure of the value of the money they have invested.
d. A value claim concept? Owners’ equity indicates that there is a person or group of people who have the last claim to the income produced by the company and to any residual value should the firm dissolve.
e. A risk concept? Owners’ equity represents a class of contributors to the company who bear a relatively high amount of risk in return for potentially high returns.