Equity

Equity represents the ownership value held by shareholders in a company, calculated as the difference between the company’s total assets and its liabilities. Equity can take various forms, including common stock, preferred stock, retained earnings, and additional paid-in capital. It reflects the residual interest in the company’s assets after all debts and obligations have been settled. Equity holders are entitled to a share of the company’s profits, which may be paid out as dividends, and they have voting rights in corporate decisions. In the context of personal finance, equity can also refer to the value of ownership in an asset, such as the equity in a home, which is the market value minus any outstanding mortgage.

Example

If a company has assets worth $10 million and liabilities of $6 million, its equity would be $4 million, representing the value owned by shareholders.