eli5 What is equity?
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from Investopedia.com
[link](https://www.investopedia.com/terms/e/equity.asp)
Equity represents the value that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debts were paid off.
We can also think of equity as a degree of residual ownership in a firm or asset after subtracting all debts associated with that asset.
Equity represents the shareholders’ stake in the company, identified on a company’s balance sheet.
The calculation of equity is a company’s total assets minus its total liabilities, and it’s used in several key financial ratios such as ROE.
Home equity is the value of a homeowner’s property (net of debt) and is another way the term equity is used.
Equity has several meanings when it comes to accounting, but generally it means value of ownership.
Often you will hear people talk about how much equity they have in their house. If you have a $500k house and $300k mortgage, then you have $200k of equity. That means if you sell the house, that’s how much money you’d get in your pocket.
If you own shares of a company, that’s called shareholders’ equity. It’s the value of the slice of the company that you own.
It’s ownership stake of an asset. You most commonly hear about equity w/ regard to homes. Say you bought a home that is worth $400k. You currently owe $250k on the mortgage, meaning the other $150k in home value is your current equity. If you sold today for $400k, you’d get the $150k while owing the other $250k to the lender.
The term can also be used to mean the value of shares of stock you own, or a percentage ownership of a business, etc. Like if you started a business with 3 other partners and split the company evenly, you’d own a 25% equity stake in the company.
You have no money but want to buy some Pokemon cards. You ask mom to borrow $5. You open the cards and find a rare Charizard worth $100. You still owe mom $5, so you have $95 dollars of equity. You don’t have any cash so if mom wants her money back you’ll have to sell the card.
It comes from the Latin aequus which means fair, but really it means *even* or *balanced*. If you have *equity* in your house, then that means you have value in it fair to its price. You owe the bank $100,000, the house is worth $400,000, your equity (or balance, evenness, etc) is $300,000.
There is a similar sounding Latin word, equus, which is the genus that includes horses. We just stole that from the Latin language. It is why equine and equity mean different things but they look like they should be the same.
Social equity is impartiality, fairness and justice for all people in social policy. Social equity takes into account systemic inequalities to ensure everyone in a community has access to the same opportunities and outcomes. Equity of all kinds acknowledges that inequalities exist and works to eliminate them.
Take the value of something, and subtract out what you owe on it, and the difference is your equity.
Example, someone owns a home that is worth $200,000, and they owe $150,000 on the mortgage, so their equity in the house would be the $50,000 difference
it’s a percentage of ownership of something, usually a company.
“i have 3% of ACME, worth $3M”
It’s how much of a loan or mortgage has been paid off. Or to put it another way, it’s how much cash you’d get if you sold your house.
If you buy a house with a mortgage. You don’t really “own” the house until the loan is paid off. if you sell it, you have to use some of the proceeds to pay off the mortgage, and you get to keep the rest.
Lets say the mortgage was $200,000. If you’ve paid off half the loan, you’ll have 100,000 in equity. If you sold it for 200,000, you’d get 100,000 cash (minus fees).
If the value of the house goes up, that counts as equity too. for the example above, lets say you bought it with a 200,000 mortgage, paid off half the mortgage, and now the value has gone up. you sell it for 350,000. you’d get 250,000 cash.
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