FinTech Glossary

What is Equity

Equity represents ownership in a business or asset after all liabilities have been deducted. In a company, equity reflects the value that belongs to owners or shareholders once debts and obligations are paid.

Business Context

Equity is a core concept in business, accounting, and investing. It shows how much of a company is owned outright by its shareholders and how much value remains after settling liabilities.

For businesses, equity plays an important role in:

1. Funding growth without taking on debt
2. Determining ownership structure
3. Valuing the company
4. Sharing profits through dividends
5. Absorbing losses during downturns

Equity can change over time as profits are retained, losses occur, new capital is raised, or ownership is diluted.

Types of Equity

1. Owner’s Equity: The owner’s stake in a business, common in sole proprietorships and partnerships.
2. Shareholders’ Equity: The portion of a company’s assets owned by shareholders. It is calculated as total assets minus total liabilities.
3. Private Equity Investment is made into companies that are not publicly listed, often to support growth or restructuring.
4. Equity Capital Funds are raised by issuing shares rather than borrowing.