Equity in finance refers to the ownership interest of shareholders in a company or property. Here's an in-depth look into this financial concept:
Equity is the residual interest in the assets of an entity after deducting liabilities. It represents the value of an owner's or shareholders' stake in a company, which can be calculated as:
Equity = Total Assets - Total Liabilities
The concept of Equity has roots in medieval Europe when businesses were often partnerships or family-owned. With the advent of the joint-stock company in the 16th and 17th centuries, the notion of equity became more formalized. The Dutch East India Company, established in 1602, was one of the first to issue shares to the public, effectively creating a market for Equity trading.
In the context of real estate, Equity is the difference between the market value of a property and the amount of any outstanding loans or mortgages against it. Home equity can be used as collateral for loans or can be realized when the property is sold.
The valuation of Equity involves several methods:
Stock Market provides a platform where Equity can be traded. It includes both primary markets (where new equity is issued) and secondary markets (where existing shares are bought and sold).
Equity markets are heavily regulated to protect investors. Organizations like the Securities and Exchange Commission (SEC) in the U.S. oversee the trading of securities to ensure transparency and fairness.