OWNERSHIP EQUITY Meaning and
Definition
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Ownership equity, also known as equity ownership or simply equity, refers to the portion of a company's total value or assets that is owned by its shareholders or owners. It represents the residual interest in the assets of the company after deducting liabilities. In other words, ownership equity is the value that remains after all debts and obligations have been paid off.
Ownership equity is a measure of how much of a company's total worth belongs to the shareholders. It can be calculated by subtracting the company's total liabilities from its total assets. The resulting figure represents the net worth of the company, which is then divided among the shareholders based on their ownership stakes.
Ownership equity serves as a representation of the shareholders' claims on the company's assets. It gives them the right to receive a share of the company's profits, known as dividends, and the right to vote on important company matters, such as electing the board of directors. The amount of ownership equity a shareholder possesses often determines the level of influence and control they have over the company's operations and decision-making processes.
Ownership equity is a crucial concept in corporate finance and investment analysis, as it provides insights into the financial health and value of a company. It is also a key factor in evaluating the overall risk and return of investing in a particular company. Investment decisions are often influenced by the assessment of ownership equity, as it reflects the potential for future growth and profitability.
Etymology of OWNERSHIP EQUITY
The word "ownership" is derived from the Old English word "anweald" which means "possession, power, control". The prefix "own" comes from the Old English word "agan" which means "to possess, have, hold". The suffix "-ship" is a noun-forming suffix, indicating a state or condition.
The word "equity" comes from the Latin word "aequitas" which means "fairness, equality". It is derived from the Latin word "aequus" which means "equal, even, level". In legal and financial contexts, "equity" refers to the value of an asset after deducting any liabilities or debts.
Therefore, the phrase "ownership equity" combines the concept of possessing, holding, or having control over something (ownership), with the idea of fairness, equality, and value (equity).
