What is Equity?

Equity is the value of a business, representing the value that would be returned to the company’s shareholders if all the business’s assets were liquidated and all debts were paid.

It’s the difference between your business’s assets and liabilities.

This figure will often appear on your business’s balance sheet. It’s sometimes called “stockholders’ equity” or “shareholders’ equity” to distinguish it from other uses of the word equity.

Assets are everything that your company owns. For instance, if you’ve purchased a building for your business, that’s an asset. If you own ten computers for your business, those are assets.

Liabilities are all the costs that your company owes. Salaries, accounts payable, and rent are all liabilities.

Positive equity is when a company’s assets outweigh its liabilities.

Negative equity is when a company’s assets cannot cover its liabilities. This means the company will be seen as a high-risk investment.

What are equities (plural)?

The term “equities” is normally used to refer to shares of common stock. If someone talks about their equities or equity portfolio, they’re referring to their stock holdings.

What is intangible equity?

Intangible equity can’t be easily quantified on a balance sheet. It refers to things like:

  • The company’s reputation
  • Intellectual property
  • Brand identity (sometimes called “brand equity”)

Large, well-established brands will have a lot of intangible equity; small startups likely won’t.

What is private equity?

If a business isn’t publicly traded, people may still have a stake in it through private equity. This often means they have a stake in a limited partnership. A private equity manager may invest money in privately held companies that aren’t traded on a stock exchange.

What other forms of equity are there?

The concept of equity can be applied on a personal level as well as to companies. For instance, an individual’s equity can be calculated as the value of their assets (home, car, savings, etc.) minus the value of their liabilities (mortgage, credit card debt, etc.).

Equity can also be applied to real estate, considering the value of a property versus the mortgage on it.