Key Points

Equity refers to the various rights enjoyed by shareholders in a company.

Equity, also known as shareholder equity, numerically equals total assets minus company debt.

The content of equity includes investment income rights, voting rights, election rights, residual asset distribution rights, and more.

Concept Explanation

Equity is the economic benefits obtained by shareholders from the company and the right to participate in the company's operation and management.

The size of equity directly affects the shareholders' say and control over the company, as well as serving as the basis for dividend distribution. If the company is likened to a pie, then the equity held by individual shareholders is a part of this pie.

In the balance sheet of a listed company, the equity of all shareholders added together is reflected as shareholder equity. Shareholder equity = total assets minus total liabilities.

For example, in the third quarter report of the 2022 fiscal year, Nvidia's total assets were $40.6 billion, total liabilities were $16.8 billion, and its shareholder equity = 406-168 = $23.8 billion.

Equity content

Investment income right

Shareholders have the right to receive company surplus distributions based on their shareholding, which is also the basic right of shareholders.

Voting rights

Voting rights allow shareholders to exercise decision-making power on major company matters according to their shareholding proportion.

Voting rights

In a limited company, shareholders do not necessarily directly participate in company management. The company's management decision-making power lies with the board of directors, so electing directors is an important means for shareholders to control the company.

Remaining assets distribution rights

Shareholders have the right to distribute the remaining assets of the company during liquidation, provided that the company's assets exceed its debts during liquidation.