What is Equity Anyway?
Alright, folks, time to dive deep into that mysterious realm many talk about but only accountants truly understand – Equity! Let’s make it fun and less snooze-worthy, shall we?
1. A Beneficial Interest in an Asset
Imagine you bought a beautiful Victorian house with a charming garden (because why not dream big?). Your house is worth £250,000 but there’s a little hitch – a mortgage of £100,000 still lurks in the shadows. So, your equity in this fancy house is £150,000. Yay! 🎉 You technically own more of the house than the bank does!
2. Money Returned to a Borrower in a Mortgage or Hire-Purchase Agreement
Here’s where it gets a bit trickier, but stay with me! Imagine you’re done with gloriously owning your Victorian dream house and decide to sell it. After paying off all that’s due, you get the leftover money (let’s call it your just dessert). That’s your equity!
pie
title My Equity in the Victorian House
"Mortgage" : 100000
"My Equity" : 150000
3. The Net Assets of a Company
When a company finishes paying everyone it owes money to (including those cunning holders of preference shares), what it has left is called – drumroll, please – equity! That’s the part shareholders smile about at meetings.
gantt
dateFormat YYYY-MM-DD
section Company Equity Breakdown
Creditors :done, 2023-07-10, 30d
Shareholders Get Coffee :done, after credits, 10d
Pure Equity Joy :crit, active, after shareshaves, 30d
4. The Ordinary Share Capital of a Company
In the biz world, “the ordinary shares” are like the company’s bread and butter. This section of equity is regularly addressed in boardrooms and – yes, shareholders parties too. The share capital is basically the original money injected into the company, plus any additional raised capital.
5. The Market Value of Issued Ordinary Shares
Finally, the extraordinary juggernaut of momentous value – the market price! Here’s the company’s issued ordinary shares dancing in the stock market limelight. ✨ The grand equity ride!
The Magic Formula 🧪📊
Snazzy math alert:
Equity = (Assets - Liabilities)
Say you have assets worth £500,000 and liabilities worth £200,000:
Equity = (500,000 - 200,000) = £300,000
Not too shabby, right?
Summing it All Up with Style
Knowing what equity means can not only dazzle your friends at dinner parties but also make you more financially astute. Whether it’s gauging how much of your house you actually own, understanding a company’s health, or effortlessly calculating shares, equity is the cornerstone to all that jazz. So go forth, and equity like a boss! 💼💰
