Equity

Definition

Equity has two principal meanings in financial context:

• It is a financial contract or claim, providing an (equity) investor with ownership in a company or project. It expresses an ownership interest or claim of a holder of e.g. common stock (ordinary shares) or some types of preferred stock(preference shares) of a company.
• In accounting context, (accounting) equity is the residual interest in the assets of an entity after deducting all its liabilities. That value is formally attributable to shareholders (but may or may not be actually realisable at any given moment).

Usage in Financial Statements

On a Balance Sheet report, equity represents funds contributed by the owners (shareholders) plus retained earnings or minus the accumulated losses. It can also be the net worth of a person or organization computed by subtracting total liabilities from the total assets. In the case of cooperatives, equity represents members' investment plus retained earnings, minus losses.

In the Statement of Changes in Equity this member stands for the residual interest in the assets of the entity after deducting all its liabilities. It also represents the standard value for the 'Components of equity' axis if no other member is used.

The total Carrying Amount of equity (total equity) is not measured directly. It equals the total of the carrying amounts of all recognised assets less the total of the carrying amounts of all recognised liabilities.

In market valuation terms equity denotes the excess of asset value over Liabilities. Yet Financial Statements are not designed to show an entity’s value. The implication is that the total carrying amount of equity will not generally equal:

• the aggregate market value of equity claims on the entity;
• the amount that could be raised by selling the entity as a whole on a going concern basis; or
• the amount that could be raised by selling all of the entity’s assets and settling all of its liabilities.

Variations

There are various types of equity, but equity typically refers to Shareholders Equity, which represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debt were paid off.

Synonyms

• Net Worth

See Also

• Claim

Usage

• Statement of Financial Position
• Statement of Changes in Equity

XBRL Properties

• IFRS Prefix: ifrs-smes
• Element Name: Equity [member]
• Common Initials:
• Element Type and Attributes: member[default]
• Hierarchy Level: 3
• IFRS References:

Disclaimer

This entry annotates a FIBO Ontology Class. FIBO is a trademark and the FIBO Ontology is copyright of the EDM Council, released under the MIT Open Source License. There is no guarantee that the content of this page will remain aligned with, or correctly interprets, the concepts covered by the FIBO ontology.