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What is Equity
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- Опубликовано: 14 авг 2024
- What is Equity? Equity is a term used in accounting, in real estate and home-ownership, in investing, as well as in startup financing and valuation. The meaning of the term equity is very similar in the various areas where it is used, so it will be good to review all four of these to get the best understanding.
In accounting, equity is a term that you will find on the balance sheet. What you own is on the left: assets. What you owe is on the right: liabilities and equity. Equity is the book value of the shareholder capital. The accounting equation tells you that assets equal liabilities plus equity. That also means that equity equals assets minus liabilities.
Equity on a balance sheet goes up when a company is profitable: the net income for the year gets added to equity through retained earnings. Equity on a balance sheet goes down when the company is loss-making (losses “eat up” the equity), or when the company pays a dividend to its shareholders.
Equity in home-ownership works very similar to equity on the balance sheet. What we own is on the left: the house worth $500.000. What we owe is on the right: $400.000 of mortgage loan from the bank, and the owner of the house, Jim, has $100.000 of equity in the house. Equity in home-ownership is what a home is worth minus how much you owe to the bank.
Just like equity on the balance sheet of a company can go up or down, the equity that you have in your home can go up or down. If Jim is paying down the mortgage on his house by $50.000, then the amount of the loan outstanding will decrease and his equity in the house will increase. If the market value of the house increases, then Jim’s equity in the house will increase. Remember that equity is what a home is worth minus how much you owe to the bank. If the market value of the house decreases, then Jim’s equity in the house will decrease, or even become negative. Jim will need to have a conversation with the bank to make a remediation plan to get back to positive equity, or in the worst case scenario Jim might lose the ownership of the house and the bank will need to take a partial write-off of its outstanding loan.
Investing in #equity. Remember the example of the small manufacturing business that owned a machine, had a loan from a bank, and equity from one shareholder. What if we make that a big manufacturing business that owns lots of machines at different sites totaling $1 billion, has many loans outstanding totaling $800 million that are publicly traded in the bond market, and has many different shareholders as the certificates of ownership, the equity, is traded publicly as well. As an investor, you have the choice of buying bonds (which would have a predetermined interest rate, and has the machines as collateral), or the choice of buying stocks (which are perceived as having more downside risk as well as more upside potential). Invest in debt, or invest in equity.
Want to track the total return on your stock portfolio (share price increase/decrease plus dividends received), then check out the easy-to-use online portfolio tracker called Sharesight: www.sharesight...
Equity in a startup company. How do you put a “price” on what is essentially so far just an idea, that still has to be developed and will find many ups and downs along the way? The company does not have any assets, liabilities and equity yet. The financing and valuation depend on the estimate of the revenue, profit and cash flow that the business idea might bring in the future. A good way to learn about startup companies in the tech field is the comedy series “Silicon Valley”. What happens if the app you are developing turns out to have a great compression algorithm, you are courted by investors ready to fund you, and your friends and roommates suddenly become your employees while you become the CEO?
Having equity can be a great thing. Equity has potential risks as well as potential rewards. The term equity is used in accounting, in home-ownership, in investing, and in start-up financing and valuation. Probably the easiest metaphor to remember is equity in home-ownership: what a home is worth minus how much you owe to the bank.
Philip de Vroe (The Finance Storyteller) aims to make strategy, #finance and leadership enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better #investing decisions. Philip delivers financetraining in various formats: RUclips videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!
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Enjoyed this video explaining "Equity"? Then please subscribe to the channel, and watch my video on the Accounting Equation next: ruclips.net/video/OYql7Y9NnBg/видео.html
Hi a video on de merits of interest
I think I now understand equity a bit more, yet certainly did not understand the "according to my math" on the percent of ownership. The CEO only had a 10% stake. Between the other 3, they had 9%. And that one other dude 5% for let's combine for a total of 14%. 100 - 14 is 86. Where did you come up with the number 76%? Are we assuming by this, that he (as owner) has his original 10 plus the difference b/w that 10 and 86?
@@govindagovindaji4662 Have you seen the comedy series Silicon Valley, that I reference? The CEO is Richard Hendricks, the owner of the incubator (house) Erlich Bachman. I think my math is right for calculating Richard's equity position, but it does change through the various seasons of the series....
So frickin simple. This is what I was struggling to understand in my accounting and business finance classes.
Great to hear that the video was helpful! I think you will also enjoy the related video on the "statement of changes in equity" which gives an overview of what flows into and out of equity on the balance sheet: ruclips.net/video/x3bjr3JPedE/видео.html
@@honeyshehbaz5988 Yes
Classes that you paid five or six figures for?
And this video explains it better and easier for free?
Can you please tell me in simple words? I'm struggling
Self learning here and learning what equity is has been rough
Simply explained. I've had a hard time understanding equity but with this video, I understand 100%
Thank you, Mumbi! Glad it was helpful!
Mind explaining me again in simple term... My confusion is how equity is generated in the business... is it already a part of assest what owner owns
Here’s how I stay lost. You provide a definition to a word I don’t know, and in that definition, there are more words I don’t know the meaning of. So I look them up and there are different definitions and meanings to the word. Example, I just looked up equity for a definition and now I’m watching this video and now I’m more lost
I totally understand that this can be confusing..... Start with the parts you do understand, and build up your understanding from there. Engineering and programming are of a "0 or 1" nature, clear binary distinctions. Financial terminology has a lot more ambiguity and subtlety. In order to better understand how equity fits into the financial statements, take a look at my video about starting a company, raising capital, and making profit: ruclips.net/video/wZdaVEX41WQ/видео.html Hopefully that helps you along.
omg, I cant believe this word made me not understand so many concepts just because it wasn't properly defined in the first place. Thanks buddy!
Glad it helped! 😎 Maybe my video on the accounting equation is useful for you too: ruclips.net/video/OYql7Y9NnBg/видео.html
The 'investing in equity' section helped me a lot, a very clear picture. Thanks!
Great to hear that, Sebastian! You're welcome. Please subscribe to the channel, I have a lot of related videos that could be of interest to you. For example: book value versus market value of shares: ruclips.net/video/uCs9AyGIb3c/видео.html
Now I have an indepth knowledge of how equity works. Nice.
Glad it was helpful! 🙂
A simple and thorough explanation.
Thank you, Vizzy! Nice to hear that.
Vizzy ur on the spot 100% correctO
@@TheFinanceStoryteller ur Great!!!!
@@williesimmons5760 Thank you! :-)
I used to study Equity in college. Now that I am investing in my own business I know understand what it is all about. Thank you very much for the information. Watching all the way from Vanuatu 😃😁👍🔥🔥🇻🇺🇻🇺🇻🇺
Yeah! Once you have your own business, you "feel" and "live" the concept, rather than just understanding it cognitively in the brain. Wishing you lots of success with your business. Maybe the related videos on the relationship between income statement and balance sheet ruclips.net/video/wZdaVEX41WQ/видео.html and the one on the importance of free cash flow in a business ruclips.net/video/FC0ZODWFzpo/видео.html will also be helpful for you!
Greetings back to you from the Netherlands!!!
And using my favorite series for example.... Great! Simple and clear, as usual!
I love "Silicon Valley" too! Can't wait for the new season to start.
Thank you. I feel like my brain went on autopilot every time someone said equity before. I truly appreciate this explanation as it definitely had more facets than I had anticipated
Equity is a beautiful thing. I much prefer it over debt. ;-) See my video on financial leverage: ruclips.net/video/GESzfA9odgE/видео.html
Care to explain me please
That was awesome man. Equity versus debt is now understood!
Boom! Happy to hear that. Onwards to seeing equity and debt in action on Apple's balance sheet: ruclips.net/video/J_1F8GoLOI8/видео.html
3:22 thank you for the very clear examples and explanations
Nice to hear that, Harry! Thank you. My mission is to make finance accessible, examples and explanations help with that.
I can’t thank you enough. I have been struggling to understand this simple concept for the longest time.
I am so happy to hear that! 🙂 Please subscribe, and spread the word!
@@TheFinanceStoryteller
Already done sir ❤️
So smooth and clean blow of understanding into my mind
Wonderful! 😊
So equity is almost synonymous with just saying ownership? If you have equity on a house that's your share you paid and that you own.
Yep, pretty much. Equity in a house is what it is worth (market value) minus the loans/mortgage you have on it.
@@TheFinanceStoryteller so equity has nothing to do with profit?
@@flipinfin In accounting, equity is a balance sheet item, while profit is an income statement item. If a company makes profit year after year, and does not pay out a dividend to shareholders, then equity will keep rising. See also: ruclips.net/video/wZdaVEX41WQ/видео.html
So in example #2 in the long run you can have an equity of the house of 500k meaning you have 100% ownership of it??
@@johnquilla8236 Yes, if you fully pay down the mortgage.
Your channel is underrated, thanks for the content.
Thanks for the kind words! Please recommend it to friends and colleagues.
I'm learning a lot! Thanks teacher ♥️ may God bless you
Thank you, Jabir! 😃
Thnx, this concept was never explained in my accountancy class
Happy to help! It's a very important concept, so good thing that you did a search for it yourself. I think you might also enjoy the related video on the relationship between balance sheet and income statement which has an important role for equity as well: ruclips.net/video/wZdaVEX41WQ/видео.html
educative content.
thank you.
Yeah, it really is
So Simple, bonds = invest in debt and stocks = invest in equity. Thank you.
Yes, the basics are simple. Then you get into the various types of bonds, types of shares, and hybrid capital like perpetual subordinated debt, convertible debt, etc.
Thank you! Just started accounting and this really helped clear up what equity was! very helpful!
Happy to help! Please spread the word to fellow students.
Online school made this really dull and hard to understand but this video makes it so so simple thank you so much !!
Happy to help, Bobby! 🙂
Does equity have a physical form when starting a company?is equity just a ownership registration to goverment?
Hello Malayali! Articles of incorporation, notarial deed of setting up a legal entity, ownership register held by a limited liability company. See also: ruclips.net/video/wZdaVEX41WQ/видео.html
Good content
Thank you.
This video is pure gold
Thank you!!!! 😊
Thank you for the video. It was easy to understand, educational, and informative. 감사합니다. Thank you.
Happy to hear that! Thank you for watching and commenting. :-)
If I want to calculate the equity of a business from the profit and loss statement to use it later on for solvency analysis.
Shall I use:
Equity = Net Current Assets (Working Capital) - Total Liabilities
or = Equity = Net Current Assets (Working Capital) - Current Liabilities
(short-term)
or Equity = Total Assets (Fixed and Current) - Total Liabilities
Hello Ahmed! Use the balance sheet (statement of financial position) ruclips.net/video/eIjCaeNm-Vk/видео.html& for that, as well as the accounting equation assets = liabilities + equity ruclips.net/video/OYql7Y9NnBg/видео.html
Great clarity given. thanks for sharing.
Happy to help! Thank you for watching and commenting.
I don't understand honestly..:(
To be honest you never know accounting from one particular video you have to watch many many to get the perfect idea!
Don’t give up; if you have questions, chances are there is a video or an article that has your answer. Keep going 🙏🏽
I am an Indian but your video is soo helpful for me....thanks a lot 😇
You're welcome! Greetings back from the Netherlands.
What being Indian has to with it?
@@Phoenix-ph9qp i am a student and its just that I didn't found an appropriate video to explain these things soo clearly....so yaa😊
that opened up an entire part of the money world i had no idea of
And once you have seen it, you cannot unsee it.... ;-)
Does investing in bond market mean that the investor is paying a portion of the debt of the company? If yes, how does the new investor make profit in this bond market?
Nope, it means that the investor is holding a portion of the debt of the company. The company owes money to the bond investor.
"shareholder capital is owed to Jane the owner of the business" I guess if Jane owns 100% of shares
Correct! Maybe I should have said "shareholder capital is owed to Jane, the sole owner of the business" to make that more clear. Thanks for pointing that out, Carley!
@@user-yb7qc7zk6o Well, it's a very small company, privately held, not listed on the stock market.
I'm blown away by the quality here. I recently enjoyed a similar book, and it was top-notch. "Game Theory and the Pursuit of Algorithmic Fairness" by Jack Frostwell
Thank you for the kind words and the reading suggestion.
Very well explained, thank you, sir!
Happy to help, Christine! 🙂
Explained and understandable. Thank you. I am going to subscribe!
Awesome, thank you Iyudmil!!!!!
Thankyou I'm not a student or anything regarding this field ( actually I'm a science student). Im just interested in this stuff. Thanks cuz i had a hard time differentiating.
Thank you, Sathya! It's good to get a basic understanding of the world of finance and accounting. I personally learn the most by going through the financial statements of companies I am interested in (Apple, Google, Tesla, Walmart) and then digging deeper in any areas that catch my interest. Some interesting real world stories about equity along the way! Have a look at some of my finance case studies: ruclips.net/video/J_1F8GoLOI8/видео.html&pp=gAQBiAQB
Great video! You made it so easy to understand! Thank you very much!
Glad to hear that! Happy to help! Have a look around the channel, I hope you find many more videos that are useful to you.
Great explanation.
Wonderful to hear that! Please share with friends and colleagues.
I have been struggling to understand this for quite a while now.
Hope the video helped to clarify it, Alicia! Have a look at my analysis of equity on Apple's balance sheet, that might help as well: ruclips.net/video/J_1F8GoLOI8/видео.html
Very clear and informative. Thank you for sharing
You're welcome! Thank you for watching and commenting. Please subscribe!
Finally I understood the equity in the balance sheet
Excellent! That is nice to hear. Have a look at some of my balance sheet case studies (Apple, Tesla, Walmart) to have it sink in further: ruclips.net/video/J_1F8GoLOI8/видео.html&pp=gAQBiAQB
Amazing video
Many thanks
Thanks for the compliment, Abdullah! :-)
may Allah bless You for explanation and time
Love from india best way of explaination
Thank you very much! Nice to hear that. :-)
I was not having any idea about this topic in my classes but understood a little bit here
Nice to hear that! Take it step by step. Two more useful videos to watch could be the accounting equation ruclips.net/video/OYql7Y9NnBg/видео.html and assets vs liabilities ruclips.net/video/f4hIGyWByNA/видео.html
Thanks a lot 💯💯💯
You're welcome 😊
Key business knowledge right there. Don't just be a goon and sign the dotted line without at least this basic information.
Exactly! Do some research before diving in. Just finished a new video on mergers and acquisitions, that might interest you as well: ruclips.net/video/BAFmgPXvlJ8/видео.html
Thank you for your valuable information & time
My pleasure! 😎
Excellent video
Thank you very much! Please subscribe and spread the word!
It finally clicked!! Thanks a ton!
Awesome! So happy to hear that. 🙂
Amazing
Thank you. 😎
Much love from Kenya 🇰🇪🇰🇪🇰🇪🇰🇪
Greetings back from the Netherlands.
Thank you for making this so Down to Earth an easy to understand vid only if that were true for my studies SMH LOL An again thanks much appreciate it life saver 😘
Happy to help! Any other terminology that needs explanation, then let me know.
Sir great explanation
Thank you, Dhananjay!
Good day
I want to understand this:Does equity have any effects on the bond I have to pay(increase or decrease) or it's just an indicator of how much I'm entitled to the property I am paying for?
Thabk you
Hello Rami! Yes, there is interaction there. Look into a term called "loan-to value" (LTV). The higher the LTV, the higher the risk for the bank on the loan, the higher the interest rate charged.
Thanks for the information ❤
My pleasure 😊
your cartoons are..... great !
Thank you! Happy to hear that! My teenage kids help me with that (as well maintaining my Instagram channel).
Thank you for making these terms very simple and clear.
You're welcome, Tifanie! Happy to help!
Great video 👍
Keep educating the world financially.
Will do! Thanks for watching and commenting.
I might start a career in Business.Very Interesting
I need Guidence Sir!!
Start here: business plans ruclips.net/video/FC0ZODWFzpo/видео.html and cash flow patterns in business ruclips.net/video/UGd2llFBiMA/видео.html and price vs value ruclips.net/video/2PO9tIt5830/видео.html
@@TheFinanceStoryteller Big Thanks
Happy to help! Every video also includes links through the endscreen or in-video cards (popping up in the top right of the screen) that link to related videos. Follow whatever captures your interest!
Just thought of another video that I think is a "must see": SWOT analysis ruclips.net/video/gUAOTQbST8E/видео.html
OMGOSH! Your video helps me to understand better about the differences of all these jargon!
I'm still confused with the part where it shows Stock Market and Equity Market. Do you mind to help clarifying? Thanks! :)
Q1. Are stock market and equity market the same?
Q2. Is equity also known as securities? Is it called equity securities? If that so, equity = securities = stock. Do they all actually mean the same?
Q3. Is debt securities the same as bond?
Hi! Happy to help.
Q1. Yes.
Q2. Securities can be equity or debt. So yes, equity securities = stock.
Q3. Yes.
I think my video on market value versus book value might be helpful for you as well: ruclips.net/video/uCs9AyGIb3c/видео.html
@@TheFinanceStoryteller Thanks for your help! You are a great educator! 🥰🥰 will watch that video later! :)
@@TheFinanceStoryteller One quick question, is financial instrument referring to all kinds of securities?
When I hear the term "financial instrument", I think of things like options, etc: ruclips.net/video/H_rGN5wOkvY/видео.html
@@TheFinanceStoryteller I see! Thanks again! :)
Thanks for explaining this in a simple way !
You're welcome!
@@TheFinanceStoryteller Ben je nederlands?
@@wildebizon1467 Jazeker!
is Equity here the value of the shares or ‘what we owe’?? Since Equity in this video is defined by ‘what we owe’... also when a company is profitable, Equity (what we owe-as defined in the video) increases because we’re borrowing more to fund more machinery, equipment?
Can you explain it by typing, and in layman terms? I get lost in your video explanations😅
Equity on the balance sheet is the book value of the equity, not the market value. To learn about the difference between these, watch my related video ruclips.net/video/uCs9AyGIb3c/видео.html
For me to explain this to you, you will first need to understand the basics of accounting. That is not something that I can explain in a few sentences. Please watch the videos I suggest.
The Finance Storyteller so there is two definitions of equity ‘what we owe to shareholders’ (based on your video) and ‘book value’ as defined by investopedia ‘ is the total value of a business' assets found on its balance sheet, and represents the value of all assets if liquidated.’
Incorrect. I am talking about the book value of equity on the balance sheet, while the definition you found on investopedia relates to the book value of assets on the balance sheet. Very different things. Do me (and yourself) a favor, and watch the videos in my accounting 101 playlist. As a minimum, the videos on the accounting equation, debits and credits, and the relationship between income statement and balance sheet ruclips.net/video/b93KBmcXanI/видео.html That takes you no more than 15 minutes to watch. It avoid us going back and forth on the same topic.
Really clear explanation. Thank you
Glad it was helpful!
Is equity the amount investors like in dragon den pay to the company to hope for dividend???
There are two ways for investors to benefit from investing equity capital in a company: possibly being able to sell their shares for more than they bought them for, and receiving a dividend if the company in a later stage of development is generating enough free cash flow to be able to pay dividends. See also: my video on initial public offerings ruclips.net/video/4t62BEH9Ajs/видео.html and dividend explained ruclips.net/video/Wy7R-Gqfb6c/видео.html
Subbed and liked
Wonderful! Please spread the word to friends and colleagues.
Thank you, Seeing this video which perfectly answers what i was wondering, Result = Subscription.
Very happy to hear that!!! Thank you.
Very good, this help a lot
Nice to hear that! Thank you for watching and commenting.
Can anyone tell me what is the correct order of watching the finance storyteller videos in order to learn finance from scratch?... highly appreciated
Hello Anmol! I would recommend to use the playlists for that. Finance for beginners ruclips.net/video/iR7b2NjgAO8/видео.html and Accounting 101 ruclips.net/video/OYql7Y9NnBg/видео.html and Finance case studies ruclips.net/video/PI9X5Ybek_E/видео.html Once you are in a video, cards (pop-up messages) will appear on the top right, with suggestions of related videos to watch. Also, the endscreen of every video has two suggestions of what to watch next. Hope this helps!
One question, If I was an investor in this company I can invest in bonds? meaning I'll buy bonds for the company expecting a return from said company and the ability to repay the bond while earning profit in doing that?
Correct, Mohammad! Actually, the topic of "what is the difference between investing in shares vs bonds" is on my list of video topics to make in the near future. If you buy bonds, you have visibility on the time horizon in terms of when they repay (5 year loan, 10 year loan), interest rate or other way of compensating the investor for the investment (2% per year, 3% per year, etc.), and possible collateral/security in case the company goes bankrupt. As a shareholder, you are co-owner of the company, and hope to expect dividends from the company (now or later), it's for an indefinite period (until you sell the shares) and basically have little or no protection in case the company goes bankrupt. Does that help?
@MAGIC ㄆ SOUMIK I would say that stocks are NOT time bounded: you become a shareholder, and can remain so for an indefinite period (until you sell, until the company gets acquired, or until it goes bankrupt). Bonds tend to be issued for a pre-defined period (1 year, 3 years, 5 years, 10 years, etc.), even though there are also things called "perpetual bonds". If bonds are listed, then you can trade them. Some bonds are, some aren't.
Great content!😄
Glad you think so, Maureen! Thank you for watching and commenting.
i have a question in the “equity in accounting” section of the video where the company has the 1 million dollar machine and they company owes Jane 200,000 dollars. Does Jane no longer own the business once she gets her 200,000?
A very good question! At the moment, the business only has the machine on the assets side of the balance sheet, so even if the business would want to pay $200K to Jane, it doesn't currently have the cash. If the business uses the machine to manufacture products that it then sells at a good margin, then it generates both cash from operating activities (what customers pay for the finished product is bigger than what is paid to suppliers for raw materials and to employees in salaries, this grows the cash balance on the assets side of the balance sheet) as well profit (which would grow the value of the equity on the right-hand side). At some point, the business might consider paying $200K to its shareholder Jane, either through dividends or in buying back shares. However, the bank will have terms and conditions in the loan agreement that precludes the company from paying dividends or buying back shares if that makes things too risky (i.e. if it increases the chance of the company going bankruptcy). The loan agreement is likely to have minimum requirements on solvency (how much equity is needed as either an amount, or as a percentage of the total balance sheet).
Have a look at the related video on the link between income statement and balance sheet to see how the dynamics work: ruclips.net/video/wZdaVEX41WQ/видео.html The balance sheet is a static picture of what a company owns and what it owes at a point in time, it is interesting to see the flows over time.
Hope this helps!
Thank you for this video!
Glad it was helpful!
what if for example i use my money to buy the house for 500k I wouldnt have any other connection with the back would I? so how will i equity be then?
Correct. If you have $500K of your own money and use it to buy the house, then it's all financed with equity with no bank loan.
Thank you so much helped me a lot can you make video on Basel norms
Thanks for the suggestion, but that's not an area I have expertise in.
Hi. Your video explain very clearly. Would like to ask if my Total Equity is ($10,000) loss. Current yr earning is $1800. What is the Retained Loss? Total shareholders's Equity is $2. Thanks
Hi Chinmee! Your question is not very clear to me, but perhaps my video on retained earnings ruclips.net/video/xiwQh5E7JWQ/видео.html or the statement of changes in equity ruclips.net/video/x3bjr3JPedE/видео.html can help.
Thnks
Equity and shares are same ? Sir
Please clear doubt shares / stock / equity are same ?
Or equity means equal distribution of profit from shares ???
Hello Muhammad! Equity, stock and shares are related terms, but not always fully the same. If someone talks about "having equity in a company", then it is indeed a synonym for "having shares in a company". Distribution of profit to shareholders is called dividend: ruclips.net/video/Wy7R-Gqfb6c/видео.html
@@TheFinanceStoryteller Thank you
In the home-ownership example, we have a 500k home (own) and owe 400k to the bank. Therefore, 100k is already paid off, correct? So why this 100k is in owe instead of own? If I already paid the 100k, how come I owe 100k?
In the world of finance and accounting, we consider the house a separate "entity" or unit, the bank as a separate one, and the owner as a separate one. So the "house entity" owes money to both the "bank entity" and the "owner entity". That might sound a bit strange at first, I know! 😉
Awesome video and great explanation. Thanks for making it!
I have a question: in the manufacturing business example, you mentioned that there are two possibilities of investment, bond market and stock market. The question is: what is the difference between the equity market and the stock market? Are there different types of shares that we can invest in(an equity share, a stock share) and if so, what does each option imply?
Thanks in advance! Again, great video! Best wishes!
Thank you for the kind words! In most cases, in US English, people use the terms equity market and stock market as the same thing. Some people however use stock market purely for stocks that are listed on a stock exchange ("publicly listed"), versus equity market for privately held companies where venture capitalists might directly buy a stake. Hope this helps.
@@TheFinanceStoryteller wonderful! That makes sense! Thanks for answering 👍😄
All the best!!!
Happy to help!!! Thank you for watching and commenting. Please spread the word to friends and colleagues.
Very good and understandable video, keep going man!
Great to hear that! Thank you, Hürkan!
great one
Thank you!!!
How is equity generated.. ?I'm still confused.. Why it is shown as equity as it is already coming from what owner owns..
The business (or the house) as well as the owner are separate "entities". If you think of the owner having a balance sheet and the business having a balance sheet, then the owner on the asset side (on the left hand side) of his/her balance sheet has an asset that he/she owns called "investment in subsidiaries", and the business has equity owed to the owner on its balance sheet on the right hand side.
The other way to think about is that when the owner starts the business, he/she transfers money from their personal bank account to the company's bank account, and in return gets a certificate of ownership of the company. That certificate of ownership is equity.
Have a look at my video on the relationship between income statement and balance sheet, where I walk through the steps to start a business, and you will see how that relates to the financial statements: ruclips.net/video/wZdaVEX41WQ/видео.html
Wait so
In houses.
It’s what it’s WORTH (appraised at?) or what it cost me.. minus what I owe?
You can take both approaches. The first would be called (in technical accounting terms) market value (or fair value), and the second one historical cost.
Just amazing
Thank you!!! 😊
What is equity gap? Does it mean Negative Equity where Liability exceeds Asset?
I had not heard of that term before you mentioned it. A quick online search led me to the following definition: equity gap is a term used to explain the gap a company experiences in funding as it moves up the ladder of different finance sources. An equity gap therefore affects businesses that are seeking a sum of money that is beyond the financial means of most informal investors, but below the level at which it is viable for venture capitalists to invest. My video "What is an IPO" covers the stages of funding of a startup in the section on funding rounds and seed capital ruclips.net/video/4t62BEH9Ajs/видео.html
Thank you, I am just about to make my first index fund purchase via vanguard. I intend to invest long term and just leave the funds ‘locked away’ for at least 5 years forgetting about it. I am just getting slightly stuck on how I balance my percentage portfolio between equity vs bonds. Low risk is good for me. Any tips or related videos you can recommend?
Hello Leslie! I like "buy and hold" for the long term as well! I can think of 3 tips right now:
I can show you what is in my portfolio in my video "What is an ETF" ruclips.net/video/GBLNKbOgQ4w/видео.html (not encouraging you to copy it, but it does address the question of balancing a bit)
I have some practical tips on how to start investing: ruclips.net/video/rdD-PNxAtjI/видео.html
And to "zoom out" to the bigger picture, these are my thoughts on building an investment portfolio ruclips.net/video/K4mWd2zBYVk/видео.html
Hope this helps!
So if someone gets equity shares in a company like 2% does that mean that person get 2% of that company's profit indefinitely?
Hi! I would word it as entitled to 2% of the results. If a company makes a profit, that doesn't necessarily mean it pays out that profit as a dividend ruclips.net/video/Wy7R-Gqfb6c/видео.html
If you own a house for 500K, mortgage of 400k and paid 100k of your own money and let's say overnight it's market value rose to 1 million dollars do you have an equity of 600k? Could you then sell home for 1 million pay off mortgage and have 600k all to yourself?
Yes, you could. However, you will have to take into account transaction fees on selling the house, and need to read the terms and conditions of the mortgage contract to see if there are any penalties for an early repayment in full. Plus, once you have sold the house, you probably have to buy another one (at the high market values that you benefited from as a seller, but are suffering from as a buyer) or rent one at inflated rent values....
Thanku soo muchh..... 💙
You're welcome!
easily explained
Nice to hear that, Martina! Thank you for watching and commenting.
The banks are only able to create such loans from our private estates once we provide a SSN & signature. Everything is owed back to us the original creditors correct?
Sorry, can't help you there. I am not an expert on loan origination and banking.
Great video.
I have a question here. What if I start a company and finance it without taking any loans, then is there any equity?
Yes, equity is the same as shareholder capital. Take a look at my video on the relationship between income statement and balance sheet, it is the story of starting a company and doing the journal entries step-by-step: ruclips.net/video/wZdaVEX41WQ/видео.html
@@TheFinanceStoryteller thanks . I will check it
So it's the part that you own of the value of what is mortgaged
Yes, that is one way to put it.
Could you please tell me if provision for depreciation
This video explains depreciation on conceptual as well as detailed level: ruclips.net/video/6SY8s1_OEro/видео.html
Thank you
You're welcome!!! 😎
What is the difference between divened and equity?
Equity = book value of the shareholder capital on the balance sheet of a company. Dividend = a payment made by a corporation to its shareholders, usually in cash, and usually as a distribution of profits.
What if I'm having 100$ in asset 70$ in liability and 30$ in equity ,that I've decided to spend 10$ from my equity (retained earnings) to buy an asset .
it'll make the equation asset - liability = equity as 110$-70$=40$
How i had an increase in equity if I'm spending it like my equity went from 30$ to 40$ ~ ?
Can you explain this please
Hello Remijius. You don't "spend" equity. Assets are what you own. Liabilities and equity are what you owe. If you take $10 of cash to buy inventory, then you book debit inventory $10 credit cash $10. Total assets stay $100 (even though the composition of the assets changes), liabilities stay $70 and equity stays $30. Check my videos on the accounting equation ruclips.net/video/OYql7Y9NnBg/видео.html and the steps of setting up a company (buying assets) ruclips.net/video/wZdaVEX41WQ/видео.html
Is it only equity for the person who owns the house? The person you buying it from?
Equity in home-ownership is what a home is worth minus how much you owe to the bank. If someone sells a house to you, then that person receives cash in return for transferring the ownership to the house, and that cash is first used to pay off the mortgage. Whatever's left is equity. If you are the person buying, then depending on how you finance the purchase of the house, you might or might not have equity in it. If you buy the house with cash you already have available (without having to take out a loan with the bank), then you fully finance it with equity. You could also go 50/50 between equity and debt, and so on.
@@TheFinanceStoryteller Thanks made it clear as day to see. So basically if I buy a house through a loan from a bank I dont have equity till the house is fully paid off? Or what I just owe to the bank and what's left is equity understandable
@@flipinfin Yep! If you start paying down the loan, your equity in the house increases accordingly. Plus you might benefit from the housing market going up, or get hurt by the housing market going down.