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Equity

EK-wih-tee /ˈɛkwɪti/

nounB2GREGMATTOEFL

FormalBusiness

The value of ownership in a company, represented by shares; also, the difference between the value of an asset and the amount owed on it.

In finance, 'equity' often refers to shareholder's equity (ownership in a company) or home equity (value minus mortgage). It implies a residual claim after liabilities.

The story behind the word. The word 'equity' comes from the Latin 'aequus', meaning 'equal' or 'fair'. This root gives us words like 'equality' and 'equator'. In its financial sense, 'equity' originally referred to fairness or justice, particularly in legal systems. Over time, it evolved to mean the value of ownership, reflecting the idea of a fair claim or a just distribution of assets after debts are settled.

Word relationships

Ownership: More general term; 'equity' specifies the financial value of that ownership.
Net worth: Similar, but 'net worth' often applies to individuals or total assets minus liabilities, while 'equity' is specific to an asset or company ownership.

Debt: Equity represents ownership, while debt represents borrowed money that must be repaid.

Commonly confused with

Share: A 'share' is a single unit of ownership; 'equity' is the total value of that ownership.

Word family

Equitable (adjective): Fair and impartial.
Equitably (adverb): In a fair and impartial manner.

Collocations

private equity
shareholder equity
home equity
equity market
equity stake

Example sentences

"The company's total equity grew significantly after a successful year of operations." Company valuation
"Homeowners can often borrow against the equity they've built up in their property." Real estate
"Many investors seek to build long-term wealth through investments in public equity markets." Investment strategy

Memory hook

Think of 'Equity' as 'Equal' ownership value – what's left equally for owners after debts. Equal ownership

When not to use

Do not use 'equity' to refer to a single unit of ownership (use 'share') or a fixed income investment (use 'bond').

Fun facts

The concept of 'equity' in law refers to a system of justice complementing common law, aiming for fairness where strict legal rules might lead to injustice.