Equity = Assets - Liabilities. This calculates how much is left over once the company pays its debts. For example, if the company goes bankrupt, it will go into liquidation. It will have to sell its assets and use those funds to pay off its various liabilities such as debts. Once it has sold its assets and paid off its liabilities, we have what is left over for shareholders. However, this can also be applied to other circumstances such as home ownership. For instance, the value of a home might be worth $500,000, but the owner has a $300,000 mortgage on it. Only once that liability is paid off, are we left with the home owners equity in the house.