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.
