We’ve learned about assets (things you own) and liabilities (things you owe). Now, it’s time to dive into something really exciting: equity! Equity is like owning a piece of a business pie. Let’s explore what that means!
Equity is the part of a business that actually belongs to the owners. It’s what’s left over when you subtract all the liabilities (things the business owes) from all the assets (things the business owns).
Here’s a simple formula to remember:
Assets - Liabilities = Equity
Imagine you and your friends decide to have a pizza party business. Let’s break it down:
Let’s do the math:
Assets ($200) – Liabilities ($80) = Equity ($120)
That $120 of equity is your piece of the business pie!
Equity tells you how much of the business really belongs to the owners.
People might want to buy a piece of your business if it has good equity.
As your business becomes more valuable, your equity grows too!
This is the money that belongs to the people who started the business. In our pizza party example, that’s you and your friends!
Sometimes, businesses need extra money to grow. They might ask investors to buy a piece of the business. The money investors put in becomes part of the equity.
For example: If your pizza party business is doing great, you might ask a grown-up to invest $50 for a quarter of the business. Now the total equity is $170, and the grown-up owns 25% of it.
Equity isn’t just about money. It’s also about feeling important and valued. When you own a piece of a business:
Remember our pizza party business? Let’s see how it grows:
Year 1:
Year 2: (Business is doing great!):
Remember, equity is your piece of the business pie. The bigger your piece, the more the business belongs to you! By understanding equity, you’re taking a huge step in becoming a smart business thinker. Keep learning, and soon you’ll be an equity expert!
Verse 1:
Cute calculator, add it up
Assets minus debts, fill your cup
What’s left over? It’s yours to keep
Equity’s your slice, oh so sweet
Pre-Chorus:
Pizza party, ovens and dough
Borrowed cash, but watch it grow
Ownership’s the name of this game
Business Pie Slice, stake your claim
Chorus:
Business Pie Slice, it’s your piece
Equity’s growing, oh what a feast
Investors might want a nibble too
Business Pie Slice, MMM MMM ooo!
Verse 2:
Stocks and houses, start-ups too
All have equity, tried and true
Work hard, make smart choices
Your slice grows, hear the voices
(Pre-Chorus)
(Chorus)
Bridge:
Balance sheet ballet, watch it dance
Assets, liabilities, take a stance
Equity’s the star of this show
Business Pie Slice, watch it grow!
(Chorus)
Outro:
Business Pie Slice, now you know
Your piece of the pie, watch it grow!
Remember, at QMAK, we don’t just teach; we empower. We don’t just inform; we inspire. We don’t just question; we act. Become a Gold Member, and let’s unlock your child’s full potential, one question at a time.