Equity definition

Equity is the ownership value left in an asset, company, or account after any liabilities are subtracted. The word also names an asset class: shares in companies are collectively called equities.

In its ownership sense, equity is total assets minus total liabilities. On a company balance sheet this is shareholders' equity, the net book value the owners hold; in a trading account it is the account balance adjusted for the running profit or loss on open positions.

Equity differs from a liability, which is value owed rather than owned. As an asset class, equities differ from debt instruments such as bonds: a shareholder owns part of the company and ranks behind bondholders if it is wound up.

Equity Example

A company holds USD 1 million in total assets and USD 400,000 in total liabilities.

Its equity is:

equity = total assets - total liabilities

USD 1,000,000 - USD 400,000 = USD 600,000

The company has USD 600,000 of equity, the value that belongs to its shareholders once debts are settled.