How is equity derived in a business context?

Equity in a business context represents the ownership interest in a company, which is calculated by determining the residual interest after all liabilities have been settled. When you deduct total liabilities from total assets, you arrive at the equity figure. This reflects what the shareholders actually own after all debts owed by the company are accounted for.

This equation is fundamental to the accounting equation: Assets = Liabilities + Equity. Rearranging this equation to isolate equity gives you the understanding that equity is fundamentally the net value of the assets that are not financed by liabilities. Therefore, option C is the correct way to derive equity in a business.

The other options do not accurately represent how equity is calculated and may confuse other financial concepts. Multiplying total liabilities by assets does not provide a measure of equity, as equity is not derived from such an operation. Adding retained earnings to current liabilities might confuse the distinction between current obligations and the equity stake. Analyzing the depreciation of fixed assets does not directly calculate equity, as depreciation pertains to asset valuation rather than the overall equity computation.