Question

What is a firm’s equity, and private equity? Can you also explain how a firm’s equity grows using the balance sheet and income statement?

Answer 1

Firm's equity is the amount that is recived from the shareholders by subscribing to the shares of a particular company.a company should be listed on the stock exchange for inviting application from the shareholders for subscribing to the firm's equity.it represent the ownership of the shareholder's in the company.

Private equity is the amount that is recived by the company from instititional buyers or group of wealthy individuals.a private equity is not dealt in the stock exchange and big institutional investors who enjoy great buying power invest in the private equity of the firm.

Under Balance Sheet

Liabilty

Equity

Prefered stock+

Common stock+

Additional paid in capital

i)Share Premium(if shares are issued above par value)

ii)Stock Based Compensation( if equity is issued to employyes as compensatition)

iii)Option Proceedes( proceedes from the options if they are exercised)+

Retained Earnings+

Comphrehensive Income(unrealise gains/losses)-

Treasurey Stock = Firms Equity

Under Income statement

In income statement a firms equity is used to calaculate the basic earning per share and diluted earning per share.as we know that income statement shows the performance of the company in terms of the profit that is generated by the company,hence we will find equity under the liabilities side of balance sheet