Equity is the residual rights to a company’s assets net of all liabilities. In general, equity can be defined as the amount of rights of the owners of the company on the property of the company.
Assets represent everything that is owned by the company while liabilities are liabilities of the company, such as debts, which are mandatory to be settled or repaid. After the debt is paid, the value of the remaining assets is called equity. Equity can also be interpreted as net assets derived from the investment of company owners and also the results of the company’s business activities.
The amount of equity can be reduced, especially if there is a withdrawal of participation by the owners of the company, the distribution of profit allotments, and worst of all, because of the company’s losses. The value of an equity can also be negative if the amount of liabilities is greater than the amount of assets. This is known as a deficit.
Elements Of Equity
Equity is something that needs to be maintained by a company. Each company is required to regulate the value of its equity in a good and detailed manner. This can be done by recording every asset owned and existing liabilities. In order not to be in deficit, the value of equity must be greater than the value of liabilities or the amount of liabilities.
There are several elements of equity that need to be known, some of which are:
- Paid-in capital
This element is the amount of money deposited by the shareholders and is further divided into two groups, namely:
- Share capital is the sum of the value of existing shares.
- Agio or share Disagio is the difference between the amount of shareholder deposits and the total value of their shares. Agio itself is the difference above nominal and disagio is the opposite.
- Undivided profits
Also known as a collection of capital obtained from profits in previous years and not divided. This profit comes from within the company. However, if the profit then has a debit balance, then the next can be called a deficit.
This type of capital could have been taken by those entitled to it as dividends, that is, shareholders, at a later time. To anticipate the distribution of dividends on undivided profits as above, the company must have several other reserves.
- Capital Revaluation
If the assets owned by the company are revalued, it is appropriate to include the difference in the value of the old assets to the value of the new assets in the revaluation capital.
- Donation Capital
This happens when a company gets new assets that come from donations by other parties. The company itself does not spend capital at all on purchases or on acquiring new assets.
- Other Capital
Other capital can be obtained from various existing reserves, expansion capital, price reduction reserves, bond repayment preparation, and others. For the amount of Indivisible profits that have gone into the reserve fund can no longer be requested as a dividend.
Types Of Equity
Equity is one of the things that can be used as a financial calculation or analysis. Some types of equity are often used in, for example:
- Shareholders ‘ Equity
Is the entire amount of money that will be returned to shareholders if all assets owned by the company are liquidated and all debts of the company are paid. Shareholders ‘ equity is also used as a determining factor in the company’s financial condition and the value of the company itself.
- Company Owner’s Equity
Almost the same as the understanding of shareholder equity, the difference is that the profit on the owner’s equity will then be applied in various businesses that are not included in the stock exchange. All profits will go into the pocket of the business owner, so the equity value will also be the equity value of the business owner.
- Equity Financing
If a company is declared successful and successful, but does not bring significant profits, equity financing can be done as one of the strategies to find capital. Existing shares in the company can be sold to investors and the proceeds can be used to develop the company.
- Home Equity
It can also be called the value of the house reduced by the amount of mortgage debt. Home equity is very important, especially for those who are going to buy or sell their home.
Equity is one of the important parts in Accounting, Finance, and of course investment. There is nothing wrong with wanting to know and understand more.
