Equity is the company’s liability. That is, the funds that result from the contributions of the partners and the profits or losses of the year.
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They represent the part of the company’s capital that really belongs to the owners and is also known as net worth.
Total assets (assets) - Debts = Equity
A company’s equity is a thermometer of its state of health. It is something that banks and other possible creditors take into account when providing financing to a company.
Equity is generated through two channels:
- The initial capital contributed by the partners.
- The company’s earnings or profits.
And they are located in the liabilities of the balance sheet.
The company’s initial capital is composed of the capital that the owners contributed at the time of incorporation and the share premium.
Earnings represent the company’s profits that have not yet been distributed among shareholders.
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