Equity

Equity is the ownership of any asset after any liabilities associated with the asset are cleared.

Equity is the amount of money that could be returned to a company’s shareholders if all its assets were liquidated and debts paid off. A company’s equity is a good indicator of its financial health. It’s included on the balance sheet and is often used by potential investors to work out which companies they want to fund. The more equity a business has, the more valuable it is.

Equity is calculated by subtracting the value of a business’s liabilities (such as salaries and tax) from its assets (such as buildings and cash). If equity is positive, the company has enough assets to cover its liabilities. If equity is negative, the company's liabilities exceed its assets.

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Formula

Equity = Total Assets - Total Liabilities


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