We have assets the stuff a company can own and control that’s good for the company and liabilities the things that companies owe.
Our next one is shareholders equity.
Let’s read the definition off of Wikipedia.
They say equity.
We’re going to call it shareholders equity.
It says, in accounting/finance, equity is the residual claim or interest of the major junior class of investors in assets after the liabilities are paid.
What a mouthful, I always hate the way text and well in this case wikipedia defines equity I think.
An easiest way to think of equity is actually to think of home equity and I’ll explain.
So I recently bought a townhouse and my townhouse cost me three hundred thousand dollars and it’s beautiful new townhouse and that’s an asset I own. Check out for COVID19 Support.
I control it, I can sell it if I want to.
I have an asset that’s worth $300,000 but I’m a college instructor. I don’t make a lot of money I don’t have $300,000 of cash sitting around so, as you can guess, I got a mortgage.
When I got the mortgage I went to the bank and said I don’t have 300,000 I don’t even have 200,000 I don’t have 100,000 I got 50 grand I need to borrow 250 to buy this place so I got a two hundred and fifty thousand dollar mortgage again my town house is where a 250 grand my mortgage payable so how much of my house do I really own.