Total Liabilities are the combined debts and obligations that a company owes to outside parties. Total Equity, also known as shareholders' equity, represents the net value of a company, or the amount that would be returned to shareholders if all the company's assets were liquidated and all its debts repaid. The sum of Total Liabilities and Total Equity equals the total assets of a company.
While the above definition gives a brief overview, let's delve deeper into the two components. Total Liabilities can be divided into short-term (or current) liabilities, which are due within a year, and long-term liabilities. These can include accounts payable, accrued liabilities, short-term and long-term debt, and deferred tax liabilities.
Total Equity, on the other hand, consists of the initial amount of money invested into the business, additional amounts of paid-in capital, and earnings that have been reinvested in the business, also known as retained earnings. It represents the ownership interest of the shareholders (common and preferred) in the company.
These two, together, balance against a company's total assets, providing a snapshot of a company's financial health and stability. However, the ideal ratio between liabilities and equity may vary significantly between industries and individual companies.
For Apple, total liabilities include accounts payable, accrued liabilities, commercial paper, term debt, and non-current liabilities. Its total equity consists of common stock, retained earnings, and accumulated other comprehensive income.
General Motors' total liabilities include accounts payable, accrued liabilities, notes payable, long-term debt, and pension liabilities. Its total equity is composed of common stock, additional paid-in capital, and retained earnings.
For JPMorgan Chase, total liabilities include deposits, short-term borrowings, accounts payable, and accrued liabilities. Its total equity consists of preferred stock, common stock, retained earnings, and accumulated other comprehensive income.