Equity is a term with several meanings, both in the law and in finance. In another part of this issue of the Digest, the term ‘equity’ is addressed in the context of fairness in the application of law.
Equity in a financial context has the following meanings:
• the net assets of a company after payment of creditors is called the shareholders’ equity (also referred to as owners’ equity);
• the ownership interest in an asset minus the debt owed on the asset, e.g. the owner of a house worth €100,000 with a mortgage of €75,000 is said to have equity in the house of €25,000;
• the ownership interest in a company represented by shares as opposed to bonds; here we speak about ‘equity financing’ as opposed to ‘debt financing’;
• in a brokerage account, the excess of securities over a debit balance in a margin account.