What does equity represent when calculating a business's worth?

Equity represents the portion of a business's value that shareholders own outright, accounting for what remains after all liabilities have been settled. This concept is foundational in assessing a company's worth because it illustrates the financial health of the business from an ownership perspective.

When you subtract the total liabilities (debts) from the current market value of the business, what remains is the equity, providing a clear picture of the net assets available for the owners. This is particularly significant for investors, as it indicates the actual ownership stake's worth when the company's obligations are accounted for.

The other options do not accurately represent equity. Gross revenue, for instance, does not reflect profitability or the true value of ownership since it does not consider expenses or debts. Meanwhile, simply listing the assets owned outright fails to account for any financial obligations, giving an incomplete view of equity. Lastly, cumulative profit over a business's lifetime, while indicative of overall performance, does not directly convey the current net value of the business considering ongoing liabilities. Thus, assessing equity through the lens of market value minus debts provides a precise and useful measure of a business's worth.