Equity

Equity means the quality of being fair and equal. Colloquially, it has also come to mean ownership, especially in the context of sharing future profit and value appreciation, thanks to the financial usage of the term.

In accounting, it is defined as

Equity = Assets – Liabilities

A statement of change in equity is prepared to reflect the changes in the equity from one period to another. Changes in equity can take place due to the issuance of bonus shares, increase in authorized and subscribed capital, dividend payments, capital appreciation in the value of equity, liquidation, stock repurchases, etc.

Components of shareholder equity

• Outstanding shares
• Additional paid-in capital
• Retained earnings
• Treasury Stock

Valuation of equity

The value of a company’s equity is determined in order to know the performance of the company, to ascertain whether the company is financially sound or not.