Equity represents the residual value left in assets after all liabilities are deducted. Equity comes in multiple forms. The primary forms of equity are in 1) businesses, 2) homes, and 3) effort, labor, or time. Equity in businesses is often referred to as owner’s equity, owners’ equity, shareholder’s equity, shareholders' equity, stockholder’s equity, or stockholders’ equity.
Business equity is the ownership interest of the owner(s) in the business, and it is calculated by adding all of the business assets and subtracting all of the business liabilities. Home equity is the difference between the amount the homeowner owes on a mortgage and what the home is worth. It is essentially what an individual owns in a home. The amount of equity in a house can typically grow with the passage of time as the homeowner makes payments and the property's value increases. The term sweat equity refers to a person or company's contribution toward a business venture, start-up, or other project. Sweat equity is generally not monetary and, in most cases, comes in the form of physical labor, mental effort, and time. Sweat equity is commonly found in real estate and the construction industry, as well as in the corporate world—especially for business startups.
Business equity can be used to 1) raise capital, 2) fund business development and growth, 3) reward shareholders, or 4) evaluating the financial health and wellbeing of a business or company. Home equity can be utilized as leverage to finance home improvements, debt consolidation, educational expenses, business startups, or to simply refinance a mortgage. Sweat equity is often the trade-off between monetary compensation and equity in a business startup, joint venture, newly formed partnership, or real estate. Regardless of the form, equity can offer a return in a multiplicity of ways.
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Nicole Michelle
Finance and Money Wiz
July 14, 2021
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