What is equity?
Welcome to professrsavings.com, we teach finance basics. Today we will teach you about equity.
Hi I’m Rayfil Wong. We hope these investment concepts will help you be a better investor.
Keeping it simple, equity it is the value of the asset after all the liabilities or debts on the asset have been paid.
Let’s say Professor Savings opens a mini cupcake store co owned with Mrs. Professor Savings. He borrows $100,000 to buy the building and supplies for the bakery.
The business becomes a very successful bakery. With his profit, Professor Savings has paid for all the supplies and has paid $50,000 toward the loan on the building.
The bakery now has accumulated $50,000 in equity since Professor Savings was able to pay half the loan.
Once Professor Savings pays back the entire loan, his equity will increase again.
It will also increase if the property value of the building increases.
Additionally, equity can also be the stock that you own in a business also known as shareholder’s equity and these stocks represent an ownership in a business.
Does not matter if it is in a business, home or stock market. Equity is simply the value of your business or property after any amounts, debts or liabilities that are owed on it.