📖 DEFINITION AND SCOPE
✦ EQUITY
This is the total value of a company that belongs to its shareholders. It represents what’s left after all debts are paid. Equity includes not just the money shareholders invested but also profits the company has kept and any reserves;
··· Equity is broad and covers all ownership value in the company. It includes share capital, retained earnings, and reserves, showing the overall worth of shareholders' stakes.
✦ SHARE CAPITAL
This is the money a company raises by selling shares to investors. It’s the initial investment shareholders make in the company;
··· Share capital is more specific. It’s the portion of equity that comes directly from selling shares, not from profits or reserves.
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🧾 PRESENTATION IN FINANCIAL STATEMENTS
✦ EQUITY
··· Placement ⟶ Equity is listed in the balance sheet under the "Equity" section. It includes share capital, retained earnings, and reserves, showing the overall ownership value after liabilities;
··· Components ⟶ Equity gives a full view of the company's financial position. It includes the money shareholders invested and the profits the company has kept for future use.
✦ SHARE CAPITAL
··· Placement ⟶ Share capital is shown separately within the equity section of the balance sheet. It’s the amount of money raised from issuing shares to shareholders;
··· Initial Funding ⟶ Share capital represents the initial funds that shareholders put into the company. It does not grow with company profits like retained earnings do.
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⚙️ COMPONENTS
✦ EQUITY
··· Retained Earnings ⟶ This is the company’s accumulated profits that are kept for reinvestment or future use, rather than paid out as dividends;
··· Reserves ⟶ Reserves are extra funds set aside from profits for specific purposes, such as reinvestment or covering potential future losses.
✦ SHARE CAPITAL
··· Authorized Share Capital ⟶ The maximum amount of share capital the company can issue, as outlined in its legal documents;
··· Issued Share Capital ⟶ The actual amount of share capital issued to shareholders and the money the company has received from selling shares.
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🔢 FORMULAS
EQUITY = Share Capital + Retained Earnings + Reserves – Treasury Shares (if any)
SHARE CAPITAL = Number of Issued Shares × Par Value of Shares
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💡 SUMMARY
✦ EQUITY ⟶ The total value shareholders own in the company, including share capital, profits kept by the company, and reserves. It represents what’s left after all debts are paid.
✦ SHARE CAPITAL ⟶ The money a company raises from selling shares to investors. It’s a key part of equity but doesn’t include retained earnings or reserves.
✦ Share capital is part of equity, but equity shows a fuller picture of shareholders' value in the company, including profits and reserves.
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