Equity vs. Capital: What's the Difference?
Edited by Aimie Carlson || By Janet White || Published on December 6, 2023
Equity refers to ownership value or interest in an asset/company, while capital is the financial resources used for operations or investment.
Key Differences
Equity represents an owner's claim on assets after liabilities are subtracted. It's the value shareholders hold in a company. Capital, on the other hand, refers to the funds raised or invested in a business, encompassing debt and equity, used for business activities.
In accounting, equity is seen as the net worth of a company, calculated as assets minus liabilities. It reflects the residual interest in the assets. While, capital is broader, including money, assets, or resources used to generate income or produce goods.
For investors, equity implies a stake in the company, often through stocks, representing a share in its profits and losses. However, capital involves the financial assets necessary for operations, including equity, debt, and other funding sources.
Equity often fluctuates with the company's performance and market valuation. It's a measure of a company's value to its owners. Meanwhile, capital is more static, representing the initial and additional resources put into the business for growth and operation.
In terms of risk, equity holders face more risk, as they're paid after debts are settled in liquidation. Capital investors, especially debt holders, generally face lower risk as they have priority in repayment over equity investors.
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Comparison Chart
Part of Speech
Noun
Noun
Usage in Sentence
"She has equity in the tech startup."
"The company raised capital for expansion."
Plural Form
Equities (referring to multiple shares)
Capitals (referring to various forms or sources)
Derivatives
Equitable, Equitably
Capitalize, Capitalization
Common Pairings
Shareholder's equity, Home equity
Working capital, Venture capital
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Equity and Capital Definitions
Equity
It's the value of a property minus debts, like a mortgage.
Their home equity increased as they paid off the mortgage.
Capital
Informally, capital means excellent or first-rate.
That was a capital idea for the project.
Equity
Equity is the stake or ownership in a company.
Investors bought equity in the promising new company.
Capital
Capital refers to financial assets used for business.
The startup secured capital from angel investors.
Equity
It can refer to equitable treatment or distribution.
The new law ensures equity in healthcare services.
Capital
It's the most important city, often the seat of government.
Paris is the capital of France.
Equity
Equity can mean fairness or justice in the way people are treated.
The policy was designed to promote equity in education.
Capital
Capital letters are the large alphabetic characters.
Always start a sentence with a capital letter.
Equity
In finance, equity refers to stocks or shares in a company.
She diversified her portfolio by investing in various equities.
Capital
In law, capital punishment refers to the death penalty.
Capital punishment remains a controversial issue.
Equity
The state or quality of being just and fair.
Capital
A town or city that is the official seat of government in a political entity, such as a state or nation.
Equity
Something that is just and fair.
Capital
A city that is the center of a specific activity or industry
The financial capital of the world.
FAQs
How is capital different from equity?
Capital encompasses financial resources, including equity and debt, for business use.
What is equity?
Equity refers to ownership value in a company or asset.
Is capital always monetary?
Mostly, but it can also include other valuable resources.
Can equity be negative?
Yes, if liabilities exceed assets, equity becomes negative.
What's capital expenditure?
Capital expenditure is spending on fixed assets like machinery.
What is capital gain?
Capital gain is the profit from selling an asset at a higher price than its purchase price.
Do equity holders get dividends?
Yes, equity holders may receive dividends if the company profits.
How does equity impact a balance sheet?
Equity is a key component, balancing assets and liabilities.
Can a company operate without equity?
Technically no, as equity represents ownership and financial stability.
Does capital include loans?
Yes, loans are a form of capital.
What is human capital?
Human capital refers to the skills and knowledge of employees.
What is venture capital?
Venture capital is funding provided to startups and small businesses.
Can equity change over time?
Yes, it changes with company performance and market conditions.
How is working capital calculated?
Working capital is current assets minus current liabilities.
Is equity the same as stock?
In a business context, equity and stock are often used interchangeably.
What role does capital play in growth?
Capital is essential for financing business expansion and operations.
Is debt or equity better for raising capital?
It depends on the company's situation and goals.
Is home equity a good investment?
It can be, as it often appreciates over time.
Does equity dilution affect value?
Yes, it reduces the ownership percentage of existing shareholders.
Are equities liquid?
Stocks are generally liquid, but other equity forms might not be.
About Author
Written by
Janet WhiteJanet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
