Equity.
aka shareholders' equity, ownership stake, net worth
What the owners would keep if every debt were paid off today.
What it actually means
Equity is the ownership value in a business: what is left for the owners after subtracting everything the company owes from everything it owns. On a balance sheet it is assets minus liabilities. In startups and job offers, equity also means a share of ownership itself, given as shares or stock options instead of cash.
Start with the accounting meaning. If a small bakery owns ovens, stock and cash worth 150,000 and owes 90,000 in loans and unpaid bills, its equity is 60,000. That figure grows when the business keeps profits (called retained earnings) or when owners put more money in, and it shrinks with losses or when money is paid out to owners. Equity is not a pile of cash sitting somewhere; it is a calculation of what belongs to the owners on paper. Accountants sometimes call the same thing "book value", "net assets" or "owners' equity" in a sole trader or partnership.
The second meaning shows up in startups. "Equity" there means ownership itself: founders, investors and sometimes employees each hold a percentage of the company. When an investor puts in money for 20% of the company, that is an equity investment. When a job offer includes equity, it usually means shares or options that may be worth a lot or nothing, depending on how the company does, and often only after a vesting period. The book value on a balance sheet and the market value someone would pay can be very different numbers. A company can even have negative equity if it owes more than it owns, which is a warning sign lenders watch closely.
Where you'll hear it
The salary is a bit below market, but the package includes equity: options on 0.2% of the company, vesting over four years.
Translation: part of your pay is a small slice of ownership that only becomes valuable if the company grows and you stay long enough.
Also in fundraising talks about how much of the company investors get, in loan applications where banks check the owners' stake, in property, where equity is the part of a home you own outright, and in investor jargon like "equities", meaning shares.
The pop-culture version
You buy a used car for 10,000. You pay 3,000 upfront and borrow the other 7,000. The car is in your driveway, but most of its value really belongs to the lender for now.
Each payment you make shrinks the loan. After a year, if the car is worth 8,000 and you owe 4,000, the part that is truly yours is 4,000. That share is your equity in the car.
A company works the same way, just with factories, laptops and loans. And if friends had chipped in for the car in exchange for a share of it, they would hold equity too. Equity is simply the slice that is truly theirs once the lender is paid.
The practical rule: when someone says equity, ask which kind they mean, the balance sheet number or an ownership stake, and for a stake, ask for the percentage, the vesting terms and what it is realistically worth.
Say it like you mean it
“Our equity rose this year because we kept most of our profit in the business instead of paying it out.”
It links the change in equity to the reason behind it.“We have 60,000 in equity, so we have 60,000 in the bank.”
Equity is assets minus liabilities, not a cash balance.You will also hear "sweat equity", ownership earned through work instead of money, and "equity financing", raising money by selling shares rather than taking on debt.
An explainer on shareholders' equity, covering what it includes, how to read it on the balance sheet and what it says about financial health.
Decoded next
Decoded by the Kurums editorial team. Kurums Decoded translates the language of business for people who are new to it. Definitions are kept short on purpose; the serious version above goes deep. Nothing here is financial, legal or career advice.
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