equity? confused?

Question

what does equity mean in terms of finacial science, I mean the all possible meanings aside from a common share and a justice. Is it sth like a capital which a shareholders have

Answer 1

"Equity" just means "ownership" or sometimes "net ownership". In its various usages, that's what it means.

So if you have a house worth $100,000, but still owe $60,000 on the mortgage, you have "$40,000 equity" or 40% equity in the house -- because you own that much of it left over after the lenders claim.

And the basic accounting equation is:
ASSETS - LIABILITIES = EQUITY (same concept as above)

And when people speak of the "Equity markets" or "trading equities", they refer to shares of stock, which represent an ownership stake by shareholders in a company (as opposed to bonds, which are just debt the company owes).

Answer 2

Equity is the residual interest in a business after deducting all liabilities from assets.

Example simpified Balance Sheet (IAS version used, rather than ASB as it demonstrates the point better)

Tangible Fixed Assets £100
Net Current Assets £50
Net Assets therefore = £150

Share Capital & Premium £80
Profit & Loss Reserve £20
Long-term loans £50
Net Liabilities = £150

Deduct total liabilities (long-term loan) £50 from the Total (Net) Assets £150, and the equity component therefore comprises Share Capital & Premium, plus P & L Reserve.

Hope this helps... a bit

Answer 3

Kevin nailed this Q