Equity

1. Financial reporting - balance sheet.

Amounts in the balance sheet of a company representing the book value of the interests of the shareholders.

It includes share capital, cumulative retained profits (or losses), and other reserves.

It is also known as 'total equity' or 'shareholders' funds'.

The book value of total equity is equal to the book value of the company's net assets (or net liabilities).

These two items in a balance sheet always balance - so long as there are no errors.

This is what is meant by a balance sheet "balancing".

2. Financial reporting.

Comparable amounts for financial reporting entities that are not companies.

3. Capital investment.

The capital of a firm invested by those accepting the greatest degree of risk, for example the holders of ordinary shares (also known as common stock or common equity) in a company.

4. Securities.

Securities representing the rights of the risk capital investors in 3. above.

For example, ordinary shares, also known as common stock.

5. Banking and bank regulation.

Abbreviation for common equity.

6. Net asset value.

The net value of an asset, after deducting any debt relating to it or secured on it.

For example, the value of a residential property, after deducting the amount of a mortgage borrowing secured on it.

If the value of the borrowing exceeds the value of the asset, the situation can be described as 'negative equity'.

Example: Equity and Negative equity

A house is worth EUR 400k.

A borrowing of EUR 300k is secured by a mortgage over the house.

The net worth is the difference between the value of the the house (asset) EUR 400k and the borrowing (liability) EUR 300k

400k - 300k = EUR 100k

The Equity in the house is the difference between the current value, and any loans secured over it.

This is also EUR 100k.

If the value of the house falls to EUR 250k, the borrowing now exceeds the value of the asset.

This is 'negative equity' (of EUR 50k = 250k - 300k).

7. Law.

A legal system that resolves disputes between persons by resort to principles of fairness and justness.

8. Ethics - governance.

Fair treatment between different individuals and different groups.

Equity & inclusion are priority for investors

“Diversity, equity and inclusion is emerging as a priority topic for investors, with some of the world’s largest asset managers reporting increased engagement with portfolio companies in this area."

FitchRatings - November 2021.

Equity and equality

"Equity is often harder to give than equality and always needs more thought. A few cases...

At its simplest, equality could be having a townhall and inviting everyone. Equity means reserving a seat for me near the front, because my eyes are so bad I can’t read the presentation without sitting close to the screen.

Treating people equally might mean allowing anyone to apply for open positions in Treasury. It fails to acknowledge that some people are more likely than others to apply for a promotion, even if they are both equally good. We have also seen that cultural background can have a disproportionate influence on how well people perform at interview. Equity means taking the time to identify who might be good in a job, and encouraging them to apply. It can also mean offering interview practice and training to selected groups."

Frances Hinden FCT, Group Treasurer, Shell.

See also

• An introduction to equity capital
• Asset manager
• Assets
• Balance
• Balance sheet
• Blue chip
• Book equity
• Book value
• Capital
• Capital employed
• Capital structure
• Common equity
• Common Equity Tier 1
• Common law
• Common stock
• Compound instrument
• Cost of equity
• Debt
• Debt equity ratio
• Debt for equity swap
• Debt to equity ratio
• DEI
• Diversity
• Diversity, equity and inclusion
• Dividend
• Dividend growth model
• Economic value of equity
• Entity
• Equality
• Equitable
• Equity accounting
• Equity beta
• Equity capital
• Equity capital market (ECM)
• Equity cost of capital
• Equity in Diversity, equity and inclusion
• Equity instrument
• Equity investments
• Equity market
• Equity method
• Equity method investment
• Equity risk
• Equity risk premium (ERP)
• Equity security
• Equity share
• Equity structured deposit
• Equity swap
• Financial markets
• Fitch
• General equity risk
• Green equity
• Hybrid capital
• Inclusion
• Integral equity method investment
• Kay Review
• Liabilities
• Liabilities and equity
• Market/book ratio
• Member
• Mezzanine
• Mortgage
• Negative equity
• Net assets
• Net worth
• Non-equity security
• Non-integral equity method investment
• NOSH
• Ordinary shares
• Own funds
• Private equity (PE)
• Private equity house
• Quasi-equity
• Reporting entity
• Reserves
• Return on equity (ROE)
• Risk
• Share
• Share capital
• Shareholder
• Shareholder value
• Shareholders’ funds
• Shareholders’ wealth
• Specific equity risk
• Stakeholder
• Statement of changes in equity
• Statement of shareholders' equity
• Stock
• Total Loss Absorbing Capacity
• Total return swap