Understanding Equity

When you hear the world “equity” there may be many things that come to mind. And, no, it is NOT the trade union that represents performers and artists. Equity, financially speaking, has a few different meanings.

Equity means having an owning interest in a corporation. This can happen in a couple of different ways. One can either own common stock or preferred stock in a corporation. It also refers to one’s totals assets not including total liabilities. This is also called a shareholder’s equity, net worth or book value.

If you are thinking about real estate, equity means the difference between property value and how much the owner owes against that property. In other words, it is the difference between how much the house is worth and the remainder in mortgage or loan payments on that house.

If you are talking about futures trading then it is the value of the securities in a particular account. This is assuming that the account is liquid at the going price.

If one is starting a business, all owners involved will typically put forth funding into the company to finance assets. And, in terms of accounting, companies are considered to be the sum of their liabilities and assets. After you take away the liabilities, the positive remainder would be the owner’s interest or equity in the company.

Depending on where you are coming from, equity can have a variety of different meanings.

More on this topic (What's this?) Read more on Equity at Wikinvest

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