Definition

Equity is the ownership an individual or organization holds in a business. This could be in the form of stocks or property or even goods. The common types of equity are stockholder's equity, private equity, etc. Knowing, understanding, and monitoring equity can help businesses know their financial health.

Example

For estimating their equity, companies must add up total assets and remove net liabilities from it. The formula for calculating equity is Company's total assets - Company's total liabilities = Stockholder's equity

Why it matters

For investors, the equity amount tells them the financial stake they have in a company. If the company performs well, the stockholders can earn profits from their equity ownership. Additionally, they may enjoy capital gains and dividends if the share price appreciates. Equity ownership also gives stockholders the right to vote on important company decisions.

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