EQUITY

Submitted by-
Neha Gupta
Ojasvani Chaurasia
Sanyam Jain
Srishti Singh
Suyash Pradhan
Suryansh Singh
Utkarsh Anand
WHAT IS EQUITY?

Equity, typically referred to as shareholders' equity (or owners' equity for privately held companies), 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 was paid off in the case of liquidation. In the case of acquisition, it is the value of company
sales minus any liabilities owed by the company not transferred with the sale.

Equity Formula:
The accounting equation is Assets – Liabilities = Equity
EXAMPLE OF EQUITY
If ABC Company had one lakh outstanding shares, and if the company’s current market value is ₹50 per share. The
company’s market value of equity will be (₹50 per share X 1 lakh outstanding share = 50 lakhs)
TYPES OF EQUITY
There are two types of equity:

Book Value:
In accounting, equity is listed in its book value and calculated by the financial statement
record and the balance sheet equation. The equation used to evaluate book value is Equity =
Assets – Liabilities. Though the assets are the sum-up of all the company’s both non-current
and current assets. Other details incorporated in the main account assets are fixed assets,
cash, inventory, accounts receivable, property plant, intangible assets, etc.
Similar, the liabilities are sum up of current and non-current liabilities on the balance sheet.
Other accounts are short-term debt, credit, deferred revenue, accounts payable, long-term
debt, fixed financial commitment and capital leases.
Market Value:

In finance, equity is indicated as market value, which might be

significantly lower or higher than the book value. The
difference is because the accounting statement is looking at the
past (past expenditures), while financial statement is looking
ahead and forecast what the financial status of a company be.
For a public traded company, the market value of its equity is
calculated as Market Value= Share Price X Shares Outstanding.
Whereas, for a private company to analyse the market value an
investment bankers, boutique valuation firm or accounting firm
are hired.
WHAT IS THE MARKET VALUE OF EQUITY?

The market value of Equity is the total market value of all the outstanding stocks of a company. Here,
the outstanding stock/share are the shares that are owned by the shareholders, investors, etc., of a
company. Equity refers to the assets of a company after the liabilities are paid. It is also known as
Market Capitalization.
Therefore, the market value of equity is continuously changing as the two inputs(outstanding stock
and market value) keeps on changing. In a company, the market value of equity is different from the
book value of Equity, as the book value doesn’t evaluate the company’s future potential growth.
Market Value of Equity is evaluated by multiplying the current market price per stock by the total
number of the organisation’s outstanding stocks.
FACTORS AFFECTING MARKET VALUE OF EQUITY

● A number of Market Contenders- The market becomes more comprehensive

and competent if the number of investors, traders, analysts increases.
● Availability of New Information- Any new updates in the company like its
expansion, new products production affects the financial status of the company.
Therefore it affects the price of the company’s share that eventually influences
the market value of the company.
● Circular Factors- Market value keeps fluctuation. Like in recession, the market
value decreases.
● Government Interference- This point immensely interrupts the market value of
the companies. In cases, where few countries prohibit foreign people to trade in
their market. So, the market value of these companies in such a closed market
cannot expend as compare to other open markets.
 PERSONAL EQUITY (NET WORTH)
The concept of equity applies to individual people as much as it does to businesses. We all have our own personal net worth,
and a variety of assets and liabilities we can use to calculate our net worth.

Common examples of personal assets include:

● Cash
● Real estate
● Investments
● Furniture and household items
● Cars and other vehicles

Common examples of personal liabilities include:

● Credit card debt

● Lines of credit
● Outstanding bills (phone, electric, water, etc.)
● Student loans
● Mortgages
 BRAND EQUITY

When determining an asset's equity, particularly for larger corporations, it is important to

note these assets may include both tangible assets, like property, and intangible assets, like
the company's reputation and brand identity. Through years of advertising and the
development of a customer base, a company's brand can come to have an inherent value.
Some call this value "brand equity," which measures the value of a brand relative to a
generic or store-brand version of a product.

For example, many soft-drink lovers will reach for a Coke before buying a store-brand
cola because they prefer the taste or are more familiar with the flavor. If a 2-liter bottle of
store-brand cola costs $1 and a 2-liter bottle of Coke costs $2, then Coca-Cola has brand
equity of $1.

There is also such a thing as negative brand equity, which is when people will pay more
for a generic or store-brand product than they will for a particular brand name. Negative
brand equity is rare and can occur because of bad publicity, such as a product recall or a
disaster.
EQUITY VS. RETURN ON EQUITY

Return on equity (ROE) is a measure of financial performance

calculated by dividing net income by shareholder equity. Because
shareholder equity is equal to a company’s assets minus its debt,
ROE could be considered the return on net assets. ROE is
considered a measure of how effectively management uses a
company’s assets to create profits.

Equity, as we have seen, has various meanings but usually

represents ownership in an asset or a company, such as stockholders
owning equity in a company. ROE is a financial metric that
measures how much profit is generated from a company’s
shareholder equity.
 W HAT I S HO M E E QU I T Y ?

 Home equity is the value of a homeowner’s interest in their home. In other words, it is the real property’s current market value (less any liens
that are attached to that property). The amount of equity in a house—or its value—fluctuates over time as more payments are made on the
mortgage and market forces impact the current value of the property.

Value of your home

Home equity is the value of the homeowner’s interest in their home.

An owner can leverage their home equity in the form of collateral to secure either a home equity loan, a traditional home equity line of
credit (HELOC), or a fixed-rate HELOC.
A large down payment on a home (over 20%) will immediately provide a homeowner with more equity in their home than a smaller down
payment.
Home equity is an asset; it is considered a portion of an individual's net worth, but it is not a liquid asset.
 HOW HOME EQUITY WORKS

 If a portion—or all—of a home, is purchased via a

mortgage loan, the lending institution has an interest in
the home until the loan obligation has been met. Home
equity is the portion of a home's current value that the
owner actually possesses at any given time.

Equity in a house is initially acquired with the down

payment you make during the initial purchase of the
property. After that, more equity is achieved through your
mortgage payment since a contracted portion of that
payment will be assigned to bring down the outstanding
principal you still owe on the loan. You can also benefit Home Equity
from property value appreciation because it will cause your
equity value to increase.
 H O W T O C A L C U L A T E H O M E E Q U I T Y ?

 Home equity loans are disbursed by the lenders after considering the house equity, which is the difference between the
value of the home and the liabilities payable towards the home. The formula, to calculate home equity is given below:
 Equity = Current value of the house – the total outstanding amount payable towards the loan
 Let us understand this with the help of a simple example along with the calculation-
 Suppose you have purchased a house worth Rs. 50 lakh and have taken a loan for Rs. 40 lakhs, then the current equity of
your house will be Rs. 10 lakhs. Breaking it down,
 Value of the house (50,00,000) – Total loan payable (40,00,000) = Equity (10,00,000)
 In a few years, let us assume that the house value has increased to Rs. 75 lakh and you have paid off half of your loan.
You are now left with only Rs. 20 lakhs in loan payments while the value of the house has increased. Therefore, the equity
of the house will also increase in this case. The equity of the house will now be:
 Current house value (75,00,000) – Total loan payable (20,00,000) = Equity (55,00,000)
 As represented above, the equity of the house varies from time to time and it can be reduced as well. If the real estate
market drops drastically in a certain area, in that case, the value of your house in that locality will also drop. This will, in
turn, adversely affect the equity of your house.
 H O W T O B U I L D H O M E E Q U I T Y

Fortunately, there are a number of ways you can build equity in your home.
 Make A Big Down Payment
 The fastest way to build equity is to come up with a large down payment. The bigger your down payment, the more equity you’ll
immediately have in your home.
 Say you buy your home for $180,000. If you put down $5,000, you’ll owe $175,000 on your mortgage. That leaves you with $5,000 in
equity. If you put down $20,000, you’ll owe $160,000 on a home worth $180,000. That $20,000 in equity is far more impressive than
$5,000.
 Focus On Paying Off Your Mortgage
 A portion of each mortgage payment you make will go toward the principal balance of your home loan. The rest will usually go toward
paying interest, property taxes and homeowners insurance.
 When you first start making your mortgage payments, a smaller amount will go toward reducing your principal balance and more will go
toward your interest. The good news, though, is that the longer you have your mortgage, the more money will go toward reducing your
principal balance and building your equity.
 But it’s important to be aware that some loans don’t operate this way.
 If you take out an interest-only or other non-amortizing mortgage, you won’t reduce your principal balance or build equity. Instead, your
payments will only go toward paying your interest, property taxes and insurance. Eventually, you’ll need to pay a lump sum to pay off
your principal balance.
•Pay More Than The Minimum
•If you want to build equity more quickly, you can always pay more than your required payment each month. Making an extra payment each year on your own
or through biweekly payments or even paying an extra $100 a month can help you chip away at your loan’s principal balance as well as help homeowners
increase their home equity at a faster rate.

•Stay In Your Home 5 Years Or More

•You’ll build equity if your home increases in value. Of course, no home is guaranteed to see its value jump, but you will increase your odds if you stay in your
residence for a greater number of years.
•Plan on staying in your home for 5 years or more if you want to see its value jump enough to give you an equity boost.

•Renovate And Add Curb Appeal

•You can help boost your home’s value by adding an extra bedroom, renovating that old kitchen or adding a master bathroom. Investing in landscaping and
giving your home curb appeal can help too.
 H O W T O U S E H O M E E Q UI T Y

 Equity is an asset, so it makes up a portion of your total net worth. You can take
partial or lump sum withdrawals out of your equity if you need to, or you can save it
up and pass all the wealth on to your heirs.
 There are a few ways you can put your asset to work for you if you decide to use
some of your home equity.
 Sell Your Home
 You can take your equity in the home from the sale proceeds if and when you decide
to move. You won’t get to use all the money from your buyer if you still owe on a
balance on any mortgages, but you’ll be able to use your equity to buy a new home
or to bolster your savings.
 Paying your current expenses with a home equity loan is risky because you
could lose your home if you fall behind on payments and can't catch up.
• Borrow Against the Equity
• You can get cash and use it to fund just about anything with a home equity loan, also known as a second
mortgage. This allows you to tap into your home equity while you're still living there. But your goal as a
homeowner should be to build equity, so it’s wise to put that borrowed money toward a long-term investment
in your future rather than just spend it.
• Paying your current expenses with a home equity loan is risky because you could lose your home if you fall
behind on payments and can't catch up.
• Fund Your Retirement
• You can spend down your equity in your golden years with a reverse mortgage .These loans provide income
to retirees. You don't have to make monthly payments. The loan is repaid when you leave the house. But
these loans are complicated. They can create problems for homeowners and heirs.
• You must be at least 62 years old to take out a reverse mortgage. The home must be your primary residence.
 OPTIONS FOR BORROWING AGAINST HOME
EQUITY

 There are three main ways you can borrow against your home’s equity: a home equity loan, a home equity
line of credit or a cash-out refinance.
 Using equity is a smart way to borrow money because home equity money comes with lower interest
rates. If you instead turned to personal loan or credit cards, the interest you'd pay on the money you
borrowed would be far higher.
 There is a potential danger to home equity lending, though. If you fail to make your payments on time,
your lender could take your home through the foreclosure process. This can't happen when you take out a
personal loan or when you charge purchases with your credit cards.
THANKYOU