Equity

Definition: Sometimes this means the accounting value of the company’s assets less its liabilities. This is also called the “book value of equity.” Equity can also refer to the value of ownership in a company or the value of your share of ownership in assets.

Example: On your accounting balance sheet, assets = liabilities + owners equity. If you have $100 in assets and $60 in liabilities, then your equity is $40.

Why It’s Important: Your equity increases with net income, increases in assets, and decreases in liabilities. The equity on your balance sheet is not the same as the value of your company. You have to get a business valuation to estimate the value of your company.

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