What Is Equity?

What Is Equity?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Equity refers to the ownership interest in a company or property, which becomes beneficial when and if the asset appreciates over time. It represents a claim on the company’s assets and earnings. As you acquire more equity, your ownership stake in the company becomes greater. Equity can also refer to fairness and justice; in the financial world, it commonly refers to securities indicative of ownership in a corporation (like shares).

Related Questions

1. How is Equity calculated?

Equity is calculated by subtracting the total liabilities of a company from its total assets. In other words, Equity = Assets – Liabilities. This fundamental equation shows that what the company owns (assets) minus what it owes (liabilities), is equal to the stakeholder’s interest (equity).

2. What are the types of Equity?

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Equity is broadly categorized into two types: tangible equity and intangible equity. Tangible equity involves physical assets like property and equipment, whereas intangible equity relates to nonphysical assets like brand recognition or copyrights.

3. How does Equity differ from Debt?

Debt and Equity are two ways for a company to raise capital. Debt involves borrowing money to be paid back with interest, while equity involves selling a portion of the company‚Äôs ownership in exchange for capital. Debt needs to be repaid regardless of the company’s financial status, whereas equity does not require repayment, but offers a share in the company’s profits.

4. What is Home Equity?

Home Equity refers to the market value of a homeowner’s interest in their property. It’s calculated by subtracting the outstanding mortgage balance from the property’s current market value. As the balance decreases and the home’s value increases, the equity grows.

5. What is Equity Financing?

Equity financing refers to the process of raising capital through the sale of company shares to investors. In return for their investment, shareholders receive a portion of the company’s profits in the form of dividends or the sale of their shares in the future.