Equity

What is Equity?

Equity refers to the value of an ownership interest in a firm, primarily consisting of stockholders' ownership in a company. It represents the residual interest in the assets of the entity after deducting liabilities. Equity is an important measure of a company's financial health and is reflected on the balance sheet.

Short Description: Equity represents the ownership interest held by shareholders in a company, calculated as the difference between total assets and total liabilities.

• Shareholders' Equity: Calculated as total assets minus total liabilities. It includes capital invested, retained earnings, and additional paid-in capital.
• Ownership Value: Indicates the net value shareholders would receive if all assets were liquidated and all debts paid.
• Retained Earnings: Part of equity that represents cumulative profits retained for reinvestment rather than being paid out as dividends.

Understanding equity is essential for investors as it gives insight into the company's financial health and the value attributable to owners after settling all obligations.