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Key takeaways
- Equity = Asset value − Debts secured by or attributable to that asset.
- Home equity, business equity, and “owner's equity” on a balance sheet are all the same idea applied at different scales.
- Equity grows from price appreciation, debt paydown, and reinvested earnings.
- Tappable equity (HELOC, cash-out refi) is only a portion of total equity and depends on lender limits.
How Olomon thinks about this
Olomon calculates equity automatically across every asset — homes, rentals, vehicles, businesses, and investment accounts — by linking each asset to its corresponding liabilities and refreshing market values. That gives you a true equity ladder rather than a gross-asset number that hides what you actually own.
In-depth definition
Equity is one of the most overloaded words in finance. It can mean (a) ownership in a public or private company (“I own equity in Apple”), (b) the residual value in an asset after debt (“home equity”), or (c) the bottom of the balance-sheet equation (“owner's equity”). All three uses share the same underlying idea: what's left after subtracting what is owed from what is owned.
How equity grows
- Price appreciation — the asset itself becomes more valuable
- Debt paydown — each principal payment reduces liabilities and grows equity
- Retained earnings — in a business, undistributed profit grows owners' equity
- Capital contributions — new money put into the asset
Formula
Equity = Asset Value − LiabilitiesOn any single asset, equity is what remains after subtracting all debt secured by or directly attributable to that asset. Across the entire household, the same equation produces net worth.
Worked examples
Home equity
A family owns a home with a $620,000 market value and a $410,000 mortgage. Their home equity is $210,000.
Private company equity
A founder owns 40% of a company valued at $5,000,000 with $1,000,000 of debt. The total business equity is $4,000,000, and the founder's stake is worth approximately $1,600,000 before any preference or liquidation waterfall.
Frequently asked questions
Equity is the ownership value in a single asset (or class of assets). Net worth is the sum of all your equity across every asset, minus any unsecured liabilities. In effect, net worth is total household equity.
It can be, because it's collateralized borrowing at relatively low rates. But you're using your home as security, and tapping equity reduces the cushion you'd need in a downturn or sale. Treat home equity as a strategic, not casual, source of capital.
Sources
Primary, authoritative references.
- 1
Consumer Financial Protection Bureau
What is home equity? — CFPBCited for: Definition of home equity for consumers
- 2
U.S. Securities and Exchange Commission
Understanding Equity SecuritiesCited for: Public-company equity ownership
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Cite this page
APAOlomon Editorial Team. (2026). Equity. Olomon Financial Glossary. https://olomon.com/financial-glossary/equity