Equity Capital: In Conclusion
July 29, 2010, 12:00 am
Copyright © 2010 Integrated Profitability TM
To summarize this series:
● Equity = assets – liabilities
● Investors provide initial equity
● Equity grows by the amount of positive net-profit that is invested back in the business
● Equity allows a business to grow and invest in itself
● Equity is a cushion to handle inevitable financial stresses in business
● A prudent amount of equity to have is the amount needed to cover a full year of your business’s potential, combined net-losses
The “Small Business Finance & Profitability” (SBF&P) series on Equity-capital started with this question from a reader:
“Good! Finally all of this is coming together for me. How about more on capital? What is it? where does it come from, is it actual & stored somewhere physically and separately or virtual like the net or sum of two or more numbers?”
After an unintended tangent (Capital: Mea Culpa), here’s the answer to the last question:
● Equity-capital is the result of “Assets – Liabilities”
● Both assets and liabilities have an actual, a physical nature
- Assets: cash can be held in your hand; equipment is surely physical
- Liabilities: loan papers are signed; invoices create Accounts Payable
Equity-capital, however, is not tangible in these ways. It is, in fact, “…virtual like the net or sum of two or more numbers…”
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 73
Telephone: 925-202-6244
Copyright © 2010 Integrated Profitability TM
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