794:, but only to recover the unpaid loan balance. The equity balance—the asset's market value reduced by the loan balance—measures the buyer's partial ownership. This may be different from the total amount that the buyer has paid on the loan, which includes interest expense and does not consider any change in the asset's value. When an asset has a deficit instead of equity, the terms of the loan determine whether the lender can recover it from the borrower. Houses are normally financed with non-recourse loans, in which the lender assumes a risk that the owner will default with a deficit, while other assets are financed with full-recourse loans that make the borrower responsible for any deficit.
32:
1058:
149:
983:, their interest is called shareholders' equity. It is the difference between a company's assets and liabilities, and can be negative. If all shareholders are in one class, they share equally in ownership equity from all perspectives. It is not uncommon for companies to issue more than one class of stock, with each class having its own liquidation priority or voting rights. This complicates analysis for both
778:, equity courts dealt with contractual interests in property. The same asset could have an owner in equity, who held the contractual interest, and a separate owner at law, who held the title indefinitely or until the contract was fulfilled. Contract disputes were examined with consideration of whether the terms and administration of the contract were fair—that is, equitable.
1045:
at the nominal value of the liabilities. The analogy with options arises in that limited liability protects equity investors: (i) where the value of the firm is less than the value of the outstanding debt, shareholders may, and therefore would, choose not to repay the firm's debt; (ii) where firm
838:
requires that the total of liabilities and equity is equal to the total of all assets at the close of each accounting period. To satisfy this requirement, all events that affect total assets and total liabilities unequally must eventually be reported as changes in equity. Businesses summarize their
749:
owned. For example, if someone owns a car worth $ 24,000 and owes $ 10,000 on the loan used to buy the car, the difference of $ 14,000 is equity. Equity can apply to a single asset, such as a car or house, or to an entire business. A business that needs to start up or expand its operations can sell
959:
Investors in a newly established firm must contribute an initial amount of capital to it so that it can begin to transact business. This contributed amount represents the investors' equity interest in the firm. In return, they receive shares of the company's stock. Under the model of a
1005:
A company's shareholder equity balance does not determine the price at which investors can sell its stock. Other relevant factors include the prospects and risks of its business, its access to necessary credit, and the difficulty of locating a buyer. According to the theory of
753:
When liabilities attached to an asset exceed its value, the difference is called a deficit and the asset is informally said to be "underwater" or "upside-down". In government finance or other non-profit settings, equity is known as "net position" or "net assets".
813:
A business entity has a more complicated debt structure than a single asset. While some liabilities may be secured by specific assets of the business, others may be guaranteed by the assets of the entire business. If the business becomes
818:, it can be required to raise money by selling assets. Yet the equity of the business, like the equity of an asset, approximately measures the amount of the assets that belongs to the owners of the business.
976:, where the financial liability is limited to a fixed sum, owners are not required to pay the firm's debts themselves so long as the firm's books are in order and it has not involved the owners in fraud.
951:. Equity holders typically receive voting rights, meaning that they can vote on candidates for the board of directors and, if their holding is large enough, influence management decisions.
1026:. An equity investment will never have a negative market value (i.e. become a liability) even if the firm has a shareholder deficit, because the deficit is not the owners' responsibility.
943:
Equity investing is the business of purchasing stock in companies, either directly or from another investor, on the expectation that the stock will earn
790:
is said to have equity. While the loan remains unpaid, the buyer does not fully own the asset. The lender has the right to repossess it if the buyer
964:, the firm may keep contributed capital as long as it remains in business. If it liquidates, whether through a decision of the owners or through a
972:
on the firm's eventual equity. If the equity is negative (a deficit) then the unpaid creditors bear loss and the owners' claim is void. Under
897:, details the changes in these equity accounts from one accounting period to the next. Several events can produce changes in a firm's equity.
847:(or statement of net position) which shows the total assets, the specific equity balances, and the total liabilities and equity (or deficit).
910:: Income or losses may be accumulated in an equity account called "retained earnings" or "accumulated deficit", depending on its net balance.
830:, the equity is derived by subtracting its liabilities from its assets. For a business as a whole, this value is sometimes referred to as
413:
398:
928:: When the firm purchases shares into its own treasury, the amount paid for the stock is reflected in the treasury stock account.
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1046:
value is greater than debt value, the shareholders would choose to repay—i.e. exercise their option—and not to liquidate.
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of the portion of its equity and future earnings that are payable to stockholders. Advocates of this method have included
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1201:
904:: Contributions of cash from outside the firm increase its base capital and capital surplus by the amount contributed.
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1253:
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916:: Changes in the value of securities that the firm owns, or foreign currency holdings, are accumulated in its equity.
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475:
115:
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738:
423:
366:
1622:
862:(or additional paid-in capital) reflect original contributions to the business from its investors or organizers.
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Various types of equity can appear on a balance sheet, depending on the form and purpose of the business entity.
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82:
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1309:
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53:
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The term "equity" describes this type of ownership in
English because it was regulated through the system of
1000:
64:
934:: A firm that liquidates with positive equity can distribute it to owners in one or several cash payments.
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1748:
1597:
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1359:
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878:(or accumulated deficit) is the running total of the business's net income and losses, excluding any
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42:
20:
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805:. These increase the total liabilities attached to the asset and decrease the owner's equity.
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The equity of an asset can be used to secure additional liabilities. Common examples include
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827:
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8:
1697:
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1647:
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1517:
1444:
1434:
1429:
840:
835:
698:
663:
658:
633:
628:
568:
497:
455:
437:
390:
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302:
207:
132:
1682:
1677:
1562:
1537:
1484:
1409:
1324:
1221:
996:
922:: The firm reduces its retained earnings by the amount of cash payable to shareholders.
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337:
292:
1612:
1469:
1414:
1344:
1329:
1289:
973:
969:
875:
870:
balance (an offset to equity) that reflects the amount that the business has paid to
791:
750:
its equity in order to raise cash that does not have to be repaid on a set schedule.
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678:
257:
232:
1607:
1577:
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1522:
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465:
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558:
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237:
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1319:
1011:
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and other countries that use its accounting methods, equity includes various
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844:
668:
531:
450:
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282:
890:
accounts that are used for particular reconciliations of the balance sheet.
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1034:
1010:, it is profitable to buy stock in a company when it is priced below the
980:
489:
1202:"On the Pricing of Corporate Debt: The Risk Structure of Interest Rates"
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834:, to distinguish it from the equity of a single asset. The fundamental
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to meet the growing demands of commercial activity. While the older
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1107:"Security Premium Reserve Meaning with Example in Accounting"
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purposes by subtracting liabilities from the value of the
1053:
1175:"Difference Between Insolvency And Negative Equity"
56:. Unsourced material may be challenged and removed.
1740:
16:Ownership of property reduced by its liabilities
1137:Equity, Also, the Forms of Action at Common Law
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1001:Valuation (finance) § Business valuation
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1029:An alternate approach, exemplified by the "
414:International Financial Reporting Standards
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713:
699:
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116:Learn how and when to remove this message
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1199:
786:Any asset that is purchased through a
1723:Valuation using discounted cash flows
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766:that developed in England during the
404:Generally-accepted auditing standards
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808:
54:adding citations to reliable sources
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419:International Standards on Auditing
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1222:10.1111/j.1540-6261.1974.tb03058.x
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893:Another financial statement, the
476:Notes to the financial statements
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781:
424:Management Accounting Principles
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30:
1623:Quantitative behavioral finance
1151:"How to calculate total equity"
774:courts dealt with questions of
41:needs additional citations for
1663:Strategic financial management
1310:Bull (stock market speculator)
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1143:
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979:When the owners of a firm are
895:statement of changes in equity
1:
1693:Sustainable Development Goals
1105:Cue, Tax (1 September 2023).
1092:
1064:Business and economics portal
1041:(including the liabilities),
1033:", values stock-equity as a
914:Unrealized investment results
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399:Generally-accepted principles
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938:
729:is an ownership interest in
7:
1049:
968:process, the owners have a
803:home equity lines of credit
10:
1785:
1375:Enterprise risk management
1200:Merton, Robert C. (1974).
1039:value of the whole company
994:
757:
18:
1360:Diversification (finance)
1270:
874:stock from shareholders.
741:. Equity is measured for
268:Constant purchasing power
165:Constant purchasing power
947:or can be resold with a
599:Accounting organizations
587:People and organizations
962:private limited company
858:(or capital stock) and
347:Amortization (business)
1573:Investment performance
1275:Alternative investment
1077:Common ordinary equity
733:that may be offset by
1568:Investment management
1553:International finance
1380:Environmental finance
1340:Computational finance
995:Further information:
471:Management discussion
65:"Equity" finance
1633:Risk-return spectrum
1588:Mathematical finance
1508:Fundamental analysis
1502:Financial technology
1400:Experimental finance
1395:Exchange traded fund
828:financial accounting
438:Financial statements
391:Accounting standards
50:improve this article
19:For other uses, see
1698:Sustainable finance
1668:Statistical finance
1648:Statistical finance
1558:Investment advisory
1518:Greater fool theory
1181:. September 8, 2020
908:Accumulated results
902:Capital investments
841:financial statement
836:accounting equation
664:Earnings management
634:Positive accounting
508:Double-entry system
498:Bank reconciliation
303:Revenue recognition
1683:Structured product
1678:Structured finance
1563:Investment banking
1538:History of banking
1325:Capital management
1209:Journal of Finance
997:Business valuation
639:Sarbanes–Oxley Act
574:Sarbanes–Oxley Act
503:Debits and credits
338:Cost of goods sold
293:Matching principle
1769:Financial capital
1749:Equity securities
1736:
1735:
1613:Position of trust
1345:Corporate finance
1330:Capital structure
1290:Asset (economics)
1262:General areas of
974:limited liability
955:Legal foundations
926:Stock repurchases
876:Retained earnings
809:Business entities
799:home equity loans
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722:
684:Two sets of books
679:Off-balance-sheet
321:Selected accounts
258:Accounting period
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125:
118:
100:
1776:
1608:Personal finance
1598:Over-the-counter
1578:Investor profile
1548:Impact investing
1543:History of money
1523:Growth investing
1385:Equity (finance)
1295:Asset allocation
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987:and accounting.
768:Late Middle Ages
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1713:Too big to fail
1708:Systematic risk
1628:Quantum finance
1533:Hedge (finance)
1513:Government bond
1350:Cost of capital
1335:Climate finance
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1155:AccountingTools
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1133:Maitland, F. W.
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1016:Benjamin Graham
1008:intrinsic value
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985:stock valuation
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860:capital surplus
852:Preferred stock
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308:Unit of account
288:Historical cost
273:Economic entity
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160:Historical cost
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1688:Sustainability
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1653:Stock exchange
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1638:Social finance
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1618:Public finance
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1322:
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1312:
1307:
1305:Bond (finance)
1302:
1297:
1292:
1287:
1282:
1280:Angel investor
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1258:
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1229:
1228:
1215:(2): 449–470.
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1087:Private equity
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1024:Warren Buffett
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970:residual claim
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884:United Kingdom
864:Treasury stock
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776:property title
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527:General ledger
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29:
15:
9:
6:
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3:
2:
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1754:Balance sheet
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1729:
1728:Watered stock
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1559:
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1506:
1503:
1500:
1496:
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1471:
1468:
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1441:
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1428:
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1408:
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1406:
1403:
1401:
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1388:
1386:
1383:
1381:
1378:
1376:
1373:
1371:
1370:Eco-investing
1368:
1366:
1363:
1361:
1358:
1356:
1355:Disinvestment
1353:
1351:
1348:
1346:
1343:
1341:
1338:
1336:
1333:
1331:
1328:
1326:
1323:
1321:
1320:Capital asset
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1316:
1313:
1311:
1308:
1306:
1303:
1301:
1298:
1296:
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1291:
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1278:
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1234:
1223:
1218:
1214:
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1203:
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1180:
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1152:
1146:
1138:
1134:
1128:
1112:
1108:
1101:
1097:
1088:
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1083:
1080:
1078:
1075:
1073:
1070:
1069:
1065:
1059:
1054:
1047:
1044:
1040:
1036:
1032:
1027:
1025:
1021:
1020:Philip Fisher
1017:
1013:
1012:present value
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1002:
998:
988:
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900:
899:
898:
896:
891:
889:
885:
881:
877:
873:
869:
868:contra-equity
866:appears as a
865:
861:
857:
856:share capital
853:
848:
846:
845:balance sheet
843:known as the
842:
837:
833:
829:
819:
817:
806:
804:
800:
795:
793:
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782:Single assets
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67: –
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61:Find sources:
55:
51:
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39:This article
37:
33:
28:
27:
22:
1764:Shareholders
1759:Stock market
1603:Pension fund
1528:Growth stock
1450:institutions
1384:
1315:Asset growth
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1208:
1195:
1183:. Retrieved
1178:
1169:
1158:. Retrieved
1154:
1145:
1136:
1127:
1115:. Retrieved
1110:
1100:
1031:Merton model
1028:
1004:
981:shareholders
978:
958:
949:capital gain
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849:
839:equity in a
832:total equity
831:
825:
812:
796:
788:secured loan
785:
761:
752:
726:
725:In finance,
724:
604:Luca Pacioli
525: /
351:
345: /
343:Depreciation
251:Key concepts
223:Governmental
112:
106:October 2020
103:
93:
86:
79:
72:
60:
48:Please help
43:verification
40:
1718:Toxic asset
1658:Stockbroker
1643:Speculation
1593:Mutual fund
1583:Market risk
1490:social work
1440:engineering
1285:Super angel
1117:1 September
1035:call option
932:Liquidation
739:liabilities
617:Development
594:Accountants
490:Bookkeeping
409:Convergence
367:Liabilities
298:Materiality
186:Major types
1743:Categories
1475:regulation
1455:management
1365:Divestment
1160:2021-02-03
1093:References
1072:Art equity
966:bankruptcy
872:repurchase
822:Accounting
772:common law
764:equity law
743:accounting
652:Misconduct
278:Fair value
228:Management
170:Management
141:Accounting
76:newspapers
1504:(Fintech)
1445:inclusion
1435:economics
1430:deepening
1405:Financial
1185:April 29,
1082:Net worth
991:Valuation
945:dividends
939:Investing
920:Dividends
882:. In the
880:dividends
737:or other
674:Hollywood
554:Financial
456:Cash-flow
213:Financial
1485:services
1410:analysis
1300:Bad debt
1135:(1909).
1113:. Cuetax
1050:See also
816:bankrupt
792:defaults
731:property
659:Creative
629:Research
559:Internal
546:Auditing
362:Goodwill
357:Expenses
208:Forensic
133:a series
131:Part of
1470:planner
1415:analyst
1264:finance
1037:on the
888:reserve
758:Origins
624:History
518:Journal
377:Revenue
263:Accrual
90:scholar
1495:system
1460:market
1111:Cuetax
1043:struck
747:assets
727:equity
569:Report
523:Ledger
466:Income
461:Equity
372:Profit
352:Equity
328:Assets
233:Social
198:Budget
92:
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21:Equity
1673:Stock
1425:crime
1420:asset
1205:(PDF)
1179:Chron
735:debts
564:Firms
193:Audit
97:JSTOR
83:books
1480:risk
1465:plan
1187:2021
1119:2023
1022:and
999:and
801:and
333:Cash
218:Fund
203:Cost
69:news
1390:ESG
1217:doi
826:In
238:Tax
175:Tax
52:by
1745::
1213:29
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