Equity is Ownership, Here's the Full Explanation!

Equity is a very important part of financial analysis. Equity is the right or interest of the business owners in the assets of the business, representing the amount of money that will be returned to the holders share business if all assets fail, and pay all expenses from the business.

Equity is the owner's ownership of the assets of the business after deducting the liabilities (liabilities) from the balance sheet. It is also defined as capital or asset business, calculated from total assets minus liabilities.

Equity Is?

The word equity comes from the word equity which means the financial value of a business. According to Financial Accounting Standards (PSAK No. 21), equity is part of the owner's rights in a business, namely the difference between existing assets and liabilities, therefore it is not an example of the sales value of a business.

Basically, this word comes from the owner's investment in the operating results of the business. This will reduce, especially on the disposal of owners, participation in profit or loss.

This consists of the owner's deposit which is often referred to as member capital or capital for legal entities, savings and others.

According to Financial Accounting Standards (2007), the objective must be stated within the scope of business ownership in order to provide clear information about the source and present it in accordance with the applicable laws and regulations. by law. basic behavior.

The Importance of Equity in Business 

The business equity value reflects the book value of the business. This value is one of the factors that determine the value of a company.

However, it is not uncommon for us to find stock prices that exceed the price per share of a company. This increase in share price shows that investors believe that the company has good prospects in the future.

While running a business, an entrepreneur must know how to understand the basics of business. In this way, you can find out how much the value of shares and assets without debt and services shows whether or not the company is good.

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Equity Example

Common stock is an example of a company's equity that represents initial capital or equity participation. It gives the owner or owners the right to own certain assets.

Business owners have responsibilities, including appointing managers and employees, and establishing company policies and procedures.

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Retained earnings are the company's total revenue minus the money paid out to shareholders. Basically, this income is the net income that you receive as a business owner and is not paid out to shareholders.