Equity is ownership interest in an asset after deducting liabilities. In a house worth $500,000 with a $300,000 mortgage, the equity is $200,000. In a company, equity is what remains for shareholders after all debts are paid. It is the residual claim. Equity holders are last in line, which is why they bear the most risk and expect the highest returns.

Equity takes several forms. In accounting, shareholders' equity appears on the balance sheet as assets minus liabilities. In investing, equity refers to stock ownership. Private equity means ownership of companies not traded on public markets. Home equity is the difference between a home's value and the mortgage owed. Each context uses the same basic idea: what is left after obligations are met.

Building equity takes time. A homeowner builds it by paying down the mortgage and benefiting from price appreciation. A stock investor builds it through price gains and reinvested dividends. A business owner builds it by retaining earnings. Equity can also be lost. Falling home prices wipe out home equity. Falling stock prices erase market equity. Bankruptcy can eliminate shareholder equity entirely. Equity is a claim on value, and value can disappear.

Common forms

• Shareholders' equity
• Home equity
• Private equity
• Owner's equity
• Return on equity