Equity — also called shareholders' equity or owner's equity — is what belongs to the owners after all debts are paid. The formula: Equity = Assets - Liabilities.
If a company has $5 million in assets and $3 million in liabilities, the equity is $2 million. This represents the owners' claim on the business. It includes invested capital, retained earnings, and other reserves.
Equity can grow through profits (retained earnings) or new investment, and it shrinks through losses, dividends, or share buybacks. A company with strong, growing equity is generally considered financially healthy.