Equity

Definition:

The value of the shares or stock issued by a company, or the value to owners after all debts and liabilities are paid. For corporations, it is commonly referred to as shareholders’ equity or market capitalization.

Example:

The equity value of the company was $525 million.

Calculation(s):

Total Equity = Total Assets – Total Liabilities

For publicly traded equity: Total Equity Value = Share Price x Total Shares Outstanding

More Information:

Equity is the value paid to owners of an asset or company. If your home, for example, is bought entirely with cash, you have 100% equity ownership, and your equity value is equivalent to the market value, or purchase price, of your home. If you however use a traditional mortgage to buy your home, putting only 20% down in cash and taking out a mortgage to finance the balance of the purchase price, your equity value is only 20% of the value of your home.

In the event of a bankruptcy or liquidation, equity holders are the last stakeholders paid. Once all assets are sold, all debts and liabilities are paid first, and the balance is paid to equity owners.