What Is Equity?

Equity, in finance and investing, refers to the ownership interest in a company. It represents the residual value of assets after liabilities are deducted. Equity holders, also known as shareholders or stockholders, have a claim on a portion of the company's assets and earnings.

Equity can be represented by stocks or shares that are traded on stock exchanges. When investors buy shares of a company, they become part owners of the company and have the potential to benefit from its growth and profitability. Shareholders can receive dividends, which are a portion of the company's profits that are distributed to them, and they can also benefit from capital gains, which are the increases in the value of their shares over time.

Equity is an important concept in corporate finance and accounting, as it represents a key source of funding for businesses. Companies can raise equity capital by issuing new shares to investors, and this can provide them with the funds they need to invest in new projects, expand their operations, or pay off debt. However, issuing new shares can also dilute the ownership interest of existing shareholders, which can affect the value of their shares.