Assets, Liabilities, and Equity
These are the three main components of the balance sheet. Assets are things that have value or generate income for a business. Liabilities are things that cost money or require payment for a business. Equity is the difference between assets and liabilities. It represents the ownership interest or residual value of a business.
Example of these concepts is buying a house. We need to know how to calculate the assets (house), liabilities (mortgage), equity (down payment), etc. of buying a house.
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In this video, William Ackman, a billionaire investor and founder of Pershing Square Capital Management, explains the basics of finance and investing.
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Understanding equity
Equity has different meanings depending on the context. Shareholder's equity is the most common type of equity - it represents the amount of money that a company's shareholders will get if all of the assets were liquidated and all the debt was paid off.
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Net Worth = Assets - Liabilities
Your net worth gives an overview of your financial situation at this point. It is the difference between what you own and what you owe.
Your net worth is positive if your assets exceed your liabilities.
A negative net worth is when your liabilities are greater than your assets....
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