Definition of Equity
The price of an asset reduced by the price of liabilities on it means equity.
Broadly saying, the interpretation of equity can be showcased with help of the equation:
Assets – Liabilities = Equity
Yet, due to very different types of assets which are there, the basic interpretation can be variety of meanings when stating to different types of assets. We’ve got you various types of equity:
- A stock or all security stating an proprietorship. This particular situation is called Private Equity. It can very well be a private enterprise.
- On a enterprises’ balance sheet, the price of the funds added by the stock holders plus the loss or profits. This is called the stake holders’ equity.
- When there is the topic of margin trading, from the margin account, the amount which is taken from the brokerage is subtracted from the price of security.
- When there is the topic of real estate, the subtraction of the recent fair market price of the property and the price the landlord has to give for mortgage. It is the total profit received when property is sold minus the mortgage. It’s another name is “real property value.”
- Now investment strategies, stocks are the classic assets. Rest of the sources are cash or fixed incomes. For the investor, they make the required return and risk and are also used for asset allocation.
- When a company becomes bankrupt and has to liquidate, the price of amount left (if any) when the company has repaid its investors. Its other names are liable capital, ownership equity or risk capital.