What is equity? What does it mean to have positive equity? What does it mean to have negative equity?

Equity, typically referred to as shareholders' equity (or owners' equity for privately held companies), represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company's debt was paid off in the case of liquidation. In the case of acquisition, it is the value of company sale minus any liabilities owed by the company not transferred with the sale.

Positive equity relates to assets you own that are financed by loans. The term positive equity is most commonly used with real estate investments, but there are other asset types where positive or negative equity is a consideration. As part of your financial situation, positive equity is a component of your overall net worth.

The concept of negative equity arises when the value of an asset (which was financed using debt) falls below the amount of the loan/mortgage that is owed to the bank in exchange for the asset. It normally occurs when the value of the asset depreciates rapidly over the period of use, resulting in negative equity for the borrower.