negative equity

noun
Updated on: 26 Jul 2017

Definition of negative equity

  1. :  a situation in which the amount of money that a person owes for something (such as a house or a car) is more than the thing is worth

Word by Word Definitions

negativeplay
  1. :  marked by denial, prohibition, or refusal

    :  marked by absence, withholding, or removal of something positive

    :  denying a predicate (see 1predicate 1a) of a subject or a part of a subject

  1. :  a reply that indicates the withholding of assent :  refusal

    :  a right of veto

    :  an adverse vote :  veto

  1. :  to refuse assent to

    :  to reject by or as if by a vote

    :  to demonstrate the falsity of

equityplay
  1. :  justice according to natural law or right

    :  freedom from bias or favoritism

    :  something that is equitable


Financial Definition of NEGATIVE EQUITY

negative equity

What It Is

Negative equity occurs when liabilities exceed the value of assets.

How It Works

For example, let's assume that Company XYZ has $20 million of total assets and $40 million of total liabilities. Company XYZ has negative equity equal to $40 million - $20 million = $20 million.

Why It Matters

When assets fall in value or companies take on too much debt, negative equity can often be the result. Years of losses can also create negative equity, because those losses are carried over to the retained earnings portion of the balance sheet.

The concept of negative equity applies to individuals as much as it applies to companies. For example, homeowners whose houses lose value often find them selves with negative equity in their homes; that is, they owe more to the bank than the house is worth.


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