KEYTAKEAWAYS
Learn about Equity, the value of ownership interest in a business, calculated by subtracting liabilities from assets. Explore its role in financial analysis and reporting.
CONTENT
DEFINITION
Equity, in the context of business and accounting, refers to the value of ownership interest held by the stakeholders of a company. It represents the residual interest in the assets of the business after deducting its liabilities. Essentially, equity is the net worth of a business and is synonymous with the ownership claim over the company’s assets.
Equity is divided into two primary categories: owner’s equity (also known as shareholder’s equity) and liabilities. Owner’s equity represents the ownership stake held by the company’s owners or shareholders. It reflects the initial capital investment, retained earnings, and other contributions by the owners. Liabilities encompass all financial obligations and debts of the business.
Understanding equity is fundamental in financial analysis and reporting, as it provides insight into the financial health of the company and is a key component in assessing the net worth of the business.
