assets = liabilities + equity Despite the financial terminology, it’s a commonsense concept that people use every day. If you buy a house for $250,000 and the bank holds a mortgage for $200,000, you know you have $50,000 worth of equity in the house. Similarly, if a company starts up with a $10,000 stock investment and borrows $5,000 to buy a machine, the company now has $15,000 worth of cash and equipment, or $15,000 worth of assets. But it owes $5,000—the bank has a claim on that—so the equity held by the company’s owners is still only $10,000.
