The residual interest in the assets of the entity after deducting all its liabilities.

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Equity refers to the ownership interest in an entity, commonly represented as the ordinary share capital of an entity.

Example: In "Sunny Bakes," Sarah invested £20,000 to start the bakery and another investor contributed £10,000. Therefore, the equity in the business amounts to £30,000. This represents the ownership stake of Sarah and her investor. Over time, if the business earns profits or issues more shares, the equity value will increase, giving the owners a higher stake in the business.