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Equity

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Definition:

Equity is the ownership interest of investors in a business firm. Investors can own equity shares in a firm in the form of common stock or preferred stock. Equity ownership in the firm means that the original business owner no longer owns 100% of the firm but shares ownership with others.

On a company's balance sheet, equity is represented by the following accounts: common stock, preferred stock, paid-in capital, and retained earnings. Equity can be calculated by subtracting total liabilities from total assets.

Also Known As: shareholder's equity, stockholder's equity
Examples:

Small business owners have to put up some of their own money, or equity, in order to start their business and before seeking financing from other sources.

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