Financial Terms / equity

# Equity: Pro-Rata Ownership of Shares

Equity is a financial asset that appears on a company's balance sheet and is essential to understanding the financial health of a business.

## Formula

``r = D1/P0 + g``

## How do I calculate the equity?

`Calculating the cost of equity is an important step for any company looking to make an investment or project. The dividend capitalization model is a popular method to use when calculating the cost of equity, as it requires that a company pay dividends. The formula for calculating the cost of equity using the dividend capitalization model is `r = D1/P0 + g`, where r is the cost of equity, D1 is the dividend paid next period, P0 is the current stock price, and g is the expected growth rate of the dividend.  Sourcetable provides powerful tools for calculating the cost of equity.`

## What is Equity?

`Equity represents the value of a company's shareholders' stake in the company. It is found on a company's balance sheet and is one of the most common pieces of data used by analysts.`

## What is Equity used for?

`Equity is used to calculate several key financial ratios, such as Price/Earnings ratio, Price/Book Value ratio, and Return on Equity.`

## Key Points

How do I calculate equity?
`r = D1/P0 + g`
Equity as a Financial Ratio
Equity is used in several key financial ratios to measure the financial health of a company and its ability to pay back debt. It is often used to compare one company's performance to another's.
Equity as Payment in Kind
Equity can be offered as payment in kind, meaning that it can be used as a form of compensation instead of cash. This is a popular option for entrepreneurs and investors who are looking to capitalize on a company's growth potential.
Equity on a Balance Sheet
Equity is found on a company's balance sheet and is a measure of the difference between the company's assets and liabilities. It is important to note that equity is not necessarily equal to the value of a company, as it can be affected by a variety of factors such as debt and market conditions. 