Equity
BeginnerEquity is the value of ownership that remains after all debts are subtracted. For a person, it is the part of an asset, such as a home, that you own outright; for a business, it is the owners' share of the company.
Equity always follows the same logic: value minus what is owed. If you own a house worth 400,000 and owe 250,000 on the mortgage, your home equity is 150,000. As you repay the mortgage, or as the house rises in value, your equity grows.
For a business, equity is the owners' claim on the company's assets once all liabilities are paid. If a company has assets of 2 million and liabilities of 1.2 million, its equity is 800,000. Equity grows when the company makes profits and keeps them, or when owners invest more money, and it shrinks with losses or payments to owners.
The word is also used for shares themselves. Investors who buy shares are said to invest in equities, because a share represents a slice of a company's ownership.
Equity can be negative. If a house falls in value below the amount owed on it, the owner has negative equity, which can make it hard to sell or refinance.
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