Equity

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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

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