UK Accounting Glossary
A description applied to the ordinary share capital of an entity.
Represents ownership interest in a firm. Also the residual dollar value of a futures trading account, assuming its liquidation at the going market price.
In business, equity refers to the value of ownership. The term equity has a connotation of partial ownership, either because of claims by other owners or the pledge of assets as debt collateral, or both. This meaning is encapsulated in the fundamental accounting equation, which defines owners’ equity as equal to assets minus liabilities. Partial ownership is implied in the use of equity as a synonym for publicly traded stock, as in the term equity market. Residual ownership after subtracting the value of debt is illustrated by the term homeowner’s equity. An important measure of the financial performance of an equity investment is return on equity (ROE), defined as net income divided by owners’ equity. In economics, equity is used as a term for fairness. In modern American law, the term equity has a meaning derived from this economic usage that relates to the type of relief sought by a plaintiff, which is classified as either legal or equitable.
An equity joint venture is a company put together by multiple entities, each holding shares as agreed in the formation.
Because of their large amount of debt, the owners have very little equity in that company.
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This glossary post was last updated: 23rd December 2018.