What is Equity?

Equity holds a broad meaning across various fields, including finance, accounting, real estate, and social justice. Equity is an essential concept in multiple fields, from financial equity in business to homeownership or societal fairness. Comprehending equity helps make informed decisions and promotes a just and equitable system.
 

Want to learn about the topic in depth? Our Equity Shares article will help you! 

 

What are the types of Equity?

Equity has spread meaning throughout multiple fields, from finance to social justice. 

Here’s a list of key types of equity:

• Financial Equity 
• Equity in Accounting 
• Equity in Social Justice & Governance 

 

1. Financial Equity

Financial equity refers to ownership in the company concerning the stock market. When a person buys the shares of a company, they become a partial owner and are entitled to a portion of profit and dividend rights. 

Shareholder’s Equity 

• The ownership interests in a company after the liabilities are deducted from the assets 
• They are found in the company’s balance sheet
• If a business earns 10 crores in assets and 4 crores in liabilities, its equity is 6 crore

 

Formula to Calculate Equity in a Business: 

 

Equity  Assets - Liabilities

 

Private Equity

• Investment in private companies 
• When venture capital firms or angel investors fund start-ups or businesses
• If a venture capitalist invests in a new tech startup 

Public Equity 

• Investment in shares of a company listed on the stock market
• Investors can buy and access the shares easily over the stock exchange 
• If an investor buys the shares of Reliance Industries or TCS 

Home Equity 

• Value of the property after deducting any outstanding loan amount
• If the worth of a house is 1 crore and the mortgage is 40 lakh, the owner’s equity will be 60 lakh 

 

Formula to Calculate Home Equity: 

 

Home Equity  Market Value of Home - Loan Amount

 

2. Equity in Accounting 

Equity in accounting is the difference between a company’s assets and liabilities. It represents the owner’s stake. 

Retained Earnings 

• When a company reinvests the earned profit instead of distributing it as dividends 
• A company earns 5 crore as profit and retains 2 crore for expansion 

Preferred Equity 

• Preferred equity is a mix between debt and common stock, offering fixed dividends but limited voting rights 
• When the investors hold preferred shares.

 

3. Equity in Social Justice & Governance 

Equity is not only about financial and accounting systems but also about the social justice system. Equity ensures that everyone gets the resources based on their needs under specific circumstances 

Educational Equity 

• Ensures fair access in terms of education regardless of economic background 
• The scholarships for students from underprivileged communities 

Gender Equity 

• Provides equal opportunities and rights to all genders 
• Equal pay for men and women in the same job role

Health Equity 

• Provides fair distribution of healthcare services to everyone.
• Government programs offer free vaccinations to low-income families 

 

Explore More 

• National Automated Clearing House 
• Public Distribution System 
• Microeconomics and Macroeconomics 
• Business Environment 

 

Stay updated with the ever-evolving commerce world! Read our latest Commerce Blogs with informative topics.

 

Frequently Asked Questions (FAQs)

Are stocks and equity different?

Yes. Equity is the ownership in a company, whereas stocks represent the ownership 

To own equity in a company, you have to buy stocks 

What is the formula to calculate equity in a business?

The formula for calculating equity in a business is: 

 

Equity  Assets - Liabilities

 

How is equity important in investments?

Equity investments allow an individual to own a part of the company and earn returns through dividends or capital appreciation.