What Is Equity?

Equity, typically referred to as shareholders' equity (or owners' equity for privately held
companies), represents the amount of money that would be returned to a company’s
shareholders if all of the assets were liquidated and all of the company's debt was paid
off in the case of liquidation. In the case of acquisition, it is the value of company sale
minus any liabilities owed by the company not transferred with the sale.

In addition, shareholder equity can represent the book value of a company. Equity can
sometimes be offered as payment-in-kind. It also represents the pro-rata ownership of a
company's shares.

KEY TAKEAWAYS

 Equity represents the value that would be returned to a company’s

shareholders if all of the assets were liquidated and all of the company's
debts were paid off.
 We can also think of equity as a degree of residual ownership in a firm or
asset after subtracting all debts associated with that asset.
 Equity represents the shareholders’ stake in the company, identified on a
company's balance sheet.
 The calculation of equity is a company's total assets minus its total
liabilities, and is used in several key financial ratios such as ROE.