Equity is a term commonly used in the financial sector in general. Equity in businesses is a major asset class, and is known as equity. So what exactly is equity? What is Equity?? Let’s find the answer through the following article.
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What is the concept of Equity?
Equity or equity is the remainder of a business’s total assets after its liabilities have been paid off. Equity includes capital owned by business owners, shareholders in joint stock companies and members in joint ventures.
Equity or equity is a common source of funding in businesses. This is the last source of assets that the unit prioritizes to use to pay salaries, pay debts or pay taxes to the state in case the business goes bankrupt or stops operating. The remainder of the Equity is then divided among the owners equal to their share of capital.
What are the business forms of Equity?
Once you understand what Equity is, learn about the form of equity in the business. Depending on the type of business, Equity can be business profit after tax or capital contribution.
The contributed capital of the owners is the owner’s investment capital, they include the capital of the State, related parties, shareholders, limited company members, general partners… in a enterprise. Particularly for joint-stock enterprises, this type of capital is calculated according to the par value of the issued shares, or exactly the charter capital.
Contributed capital assets can be foreign currency, VND, gold, value of ownership rights, land ownership rights, etc. Units and individuals register to contribute capital within 90 days from the time the company receives the registration license. business.
In essence, the goal of companies in business is always to maximize profits. Therefore, the effective use and management of capital is an extremely important factor in businesses.
Business profit after tax
Business profit after tax is the remainder after deducting payables as well as operating expenses. Normally, profits will be taken a part to reinvest to increase Equity. If the business makes a loss, the loss will be deducted from Equity.
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Capital will generally be self-generated by businesses. Or they can raise capital from a variety of methods and sources. For example, borrowing from banks, issuing stocks, bonds, etc.
The difference between the par value of the shares and the issue price is the share premium. The issue price of shares is in some cases much higher than the par value of the shares. This makes the equity premium component account for a large proportion of the total Equity of an enterprise.
Asset Appraisal Spread
The difference comes from the assessment of fixed assets, inventories, and real estate on the balance sheet which is different from the initial valuation. Therefore, when planning financial statistics on Equity, the part of assets contributed from shareholders needs to be re-evaluated.
In general, Equity has many meanings, they can be understood differently depending on the case and context. However, in the financial sector in general, Equity is the owner’s equity after deducting all liabilities and expenses.
Equity’s role in the business
What are the values that Equity brings to the business? In fact, most businesses must have a charter capital to set up. Total charter capital may vary depending on the business type of the company. Thus, the role of Equity here is to facilitate the establishment of businesses.
Besides, thanks to Equity, businesses can use them to invest in facilities, equipment, and recruit human resources for their operations to maximize profits.
In short, Equity is extremely important and essential in the business. In other words, Equity is the source of life, the pillar for businesses to operate with peace of mind.
Some other issues about Equity
Equity is very important to investors in general. For example, when evaluating a company, an investor can use shareholder equity as a criterion to determine if the investment is expensive.
It is because equity Equity is one of the main types of capital of a business. Therefore, when Equity decreases, this represents a decrease in investment capital as well. They can reduce revenue, limit production and business activities. At this time, businesses have to consider the method of borrowing capital to continue to expand and maintain operations.
If the loan amount is not adjusted appropriately, the business will lose its financial balance and the negative things behind it can be imagined by anyone. Besides, Equity can be replenished annually through business profits. If Equity decreases, this means that the business situation is not performing well.
Above is information to help you better understand the concept of Equity. Hope the article will be useful for you! If you have any questions, please contact the hotline 0944.31.9963 to be Makemoney answers.