GROUP 3

Equity/ Owner’s Capital

Owner’s Equity is defined as the proportion of the total value of a company’s assets that
can be claimed by its owners (sole proprietorship or partnership) and by its
shareholders (if it is a corporation). It is calculated by deducting all liabilities from the
total value of an asset (Equity = Assets – Liabilities). The liabilities represent the
amount owed by the owner to lenders, creditors, investors, and other individuals or
institutions who contributed to the purchase of the asset. The only difference between
owner’s equity and shareholder’s equity is whether the business is tightly held (Owner’s)
or widely held (Shareholder’s).

What is Owner’s Equity?

Shareholders equity is
the difference between
total assets and total
liabilities. It is also the
Share capital retained in
the company in addition
to the retained earnings
minus the treasury
shares.
•Common stock is a type of security that
represents ownership of equity in a company.
There are other terms – such as common share,
ordinary share, or voting share – that are
equivalent to common stock. Common stock
owners can profit from the capital appreciation of
the securities. On average, common shares offer a
higher return relative to preferred stock or bonds.
However, the higher returns come with the higher
risks associated with such securities.
•Holders of common stock own the rights to claim a share in the company’s
profits and exercise control over it by participating in the elections of the
board of directors, as well as in voting regarding important corporate policies
•Additional Paid In Capital (APIC) is the value of share capital above its stated
par value and is an accounting item under Shareholders' Equity on the balance
sheet. APIC can be created whenever a company issues new shares and can be
reduced when a company repurchases its shares.
•Preferred stock is a component of share capital which may have any combination of
features not possessed by common stock including properties of both an equity and a debt
instrument, and is generally considered a hybrid instrument.
•Retained earnings (RE) is the amount of net
income left over for the business after it has paid
out dividends to its shareholders. ... Often this
profit is paid out to shareholders, but it can also
be reinvested back into the company for growth
purposes. The money not paid to shareholders
counts as retained earnings.
Here are some examples that can help you better understand owner's equity in
action:

Example 1: If you had a car worth 200,000 but you owe

5,000 against it, your owner's equity would be 15,000.
Owner's
Example
2: Say you own a house for 500,000. Since purchasing your
equity
house, you owe the bank 100,000. Your assets, in this case,
would be 500,000 and your liabilities would amount to examples
100,000. Because owner's equity is the difference between
your assets and liabilities, your owner's equity in this
circumstance would be 400,000.
Example
3: If your business' assets amount to 4 million and the
liabilities are 3 million, the owner's equity, in this case,
would be 1 million.