Equity
Equity refers to the ownership value of a business after subtracting all liabilities from its total assets.
In Filipino MSME terms: ito yung “halaga ng pagmamay‑ari mo sa negosyo” — kung magkano talaga ang sayo matapos ibawas ang utang, puhunan, at iba pang obligasyon.
Equity represents the owner’s stake in the business.
Why Equity Matters
For Filipino MSMEs, equity is important because it:
- Shows true business value for owners and investors
- Helps assess financial health
- Determines ownership percentage in partnerships or corporations
- Supports loan applications — banks look at equity strength
- Guides investment decisions and business growth
Equity grows when the business earns profit and decreases when losses occur.
Simple Equity Formula
Equity = Assets − Liabilities
Example:
If your business has ₱500,000 in assets and ₱200,000 in liabilities:
Equity = ₱300,000
Types of Equity
- Owner’s Equity — for sole proprietors
- Shareholders’ Equity — for corporations
- Paid‑In Capital — money invested by owners or shareholders
- Retained Earnings — accumulated profits kept in the business
Example / Context
Example 1 (Sole Proprietorship):
Your sari‑sari store has ₱150,000 in assets and ₱50,000 in debts. Your equity is ₱100,000.
Example 2 (Partnership):
Two partners invest ₱200,000 each. Their equity determines their profit‑sharing.
Example 3 (Corporation):
Shareholders own equity based on the number of shares they hold.
Example 4 (Growing Business):
Your equity increases as you reinvest profits instead of withdrawing them.
Related Terms
FAQs
1. Is equity the same as capital?
Not exactly. Capital is the money invested, while equity is the total ownership value after accounting for profits, losses, and liabilities.
2. Can equity be negative?
Yes. Negative equity happens when liabilities are greater than assets.
3. How does equity increase?
Equity increases through profits, additional investment, or asset growth.
4. Why is equity important for investors?
Equity determines ownership percentage and potential returns from business growth.