Author: Livia Tay, MY
Last Updated: January 23, 2025
Equity balance refers to the total value of ownership in a trading company or account after accounting for all liabilities. It is calculated as the difference between assets and liabilities. In simpler terms, it represents the net worth or stake an owner or shareholder has in the business.
Formula: Equity Balance = Total Assets – Total Liabilities
Key Components
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Assets: Resources owned by the company, such as cash, inventory, receivables, or trading positions.
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Liabilities: Financial obligations or debts, such as loans, accounts payable, or accrued expenses.
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Equity: The residual interest after deducting liabilities from assets, often including retained earnings, capital invested, and unrealized gains from trading activities.
Example
If a trading company has $500,000 in assets, including cash and inventory, and $300,000 in liabilities, such as supplier payments and loans, the equity balance would be:
$500,000 - $300,000 = $200,000
This $200,000 represents the ownership value in the trading company.
Use this knowledge to interpret financial data accurately and make informed decisions to enhance trading operations.