What is Equity? – Bittime

In the world of finance, the term equity refers to the value of a company that can be attributed to its shareholders. On a company's balance sheet, equity reflects shareholders' ownership of the company. The calculation is done by subtracting the company's total assets from its total liabilities.

Equity Formula = Total Assets - Total Liabilities

There are two forms of equity, namely book value and market value. Typically, equity is stated in financial statements based on market value, which may be much higher or lower than book value. The reason is that accounting reports are retrospective, while financial analysts estimate future financial growth.

The market value of a company's shares is used to determine whether its shares can be traded on the stock market. This is the latest share price multiplied by the total shares outstanding. When a company is not publicly traded, determining market value becomes more difficult. If a company needs to be formally valued, they usually involve experts, such as investment banks, accounting firms, or valuation firms.

In principle, the book value of a company's equity is determined by the industry in which it operates and how the company maintains its assets. Companies that are expected to grow and earn greater profits in the future often have book values lower than market values. In contrast, companies that focus more on value than growth have book values that are higher than market values.

Equity Explanation Regarding the Benefits of Investing in Shares

Limitation of Liability

In a corporate structure, owners are generally limited in their responsibilities. Shareholders may lose some of their money, but not all of it. They are also not responsible for the company's inability to fulfill its obligations.

High Profit Potential

Shares have higher profit potential than other financial products. Although the current dividend may not be very high, the potential capital gains are huge. Over time, the overall yield or yield to maturity can become significant.

Liquidity and Flexibility

Shareholders have permission to sell their shares to others. The purchaser must ensure that the issuing company records the transfer of ownership so that the new owner receives dividends, voting rights, and other benefits.

Tax Benefits

Investors in shares also gain tax benefits. Higher yields on stocks are caused by increases in principal or capital gains, which in many countries are taxed at lower rates than other income.

Equity on World of Cryptocurrency

In the crypto world, investors can choose to acquire tokens/coins from cryptocurrency projects and stake them to receive a recurring income stream. The reward amount depends on the total equity or tokens they have from that cryptocurrency.

Investing in stocks and cryptocurrencies offers a variety of benefits, including the potential for high profits and flexibility. For investors, a good understanding of equity can help them make smarter investment decisions.

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DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.

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