What Is Business Equity and How to Calculate It?
Companies use their business equity to fund their growth and expansion. To source these funds, owners sell a part of the company to various investors which represents equity. Read on to know what equity means in business, its types and how to calculate it.
What Is Business Equity?
In simple terms, you can calculate business equity as the difference between the total assets and total liabilities of the company. One can get an idea about the valuation of a company by looking at the equity.
Equity value is recorded in the company's balance sheet. A quick glance at the equity value can give prospective and current investors a general view of a company's financial health. If the company has a negative equity value, i.e., total liabilities exceed total assets, it indicates balance sheet bankruptcy or insolvency.
Now, as you are familiar with the definition of business equity, it’s time to move to types of equity and other aspects.
What Are the Types of Business Equities?
There are primarily two types of equities in a company which are as follows:
1. Stockholder Equity
A stockholder’s equity is the total ownership of various investors of the company in the form of shares or stocks. It shows the amount that is required to be paid to the stockholders at the time of liquidation.
A stockholder’s equity includes retained earnings apart from regular dividends. Retained earnings refer to the part of profit which a company saves rather than distributing it. A stockholder’s equity is more common in case of corporations.
2. Owner’s Equity
An owner's equity refers to the amount invested by the owner of the company. It is applicable in case of sole proprietorships or partnerships, in which there is a limited number of owners who have absolute control over the business.
This equity shows the capital available in a sole proprietorship/partnership. One can also use them to measure a company's worth.
How to Calculate Business Equity?
Here is the formula for calculating business equity:
Business Equity = Value of Total Assets – Value of Total Liabilities |
You can find information about a company’s assets as well as liabilities on the balance sheet of the company.
As per the formula mentioned above, business equity can be calculated in the following way:
Value of Total Assets (A) |
Value of Total Liabilities (B) |
Business/Shareholders’ Equity (A-B) |
Rs. 50,00,000 |
Rs. 42,00,000 |
Rs. 8,00,000 |
What Are the Documents Required for Duty Drawback Scheme?
Exporters eligible for the duty drawback on export must show the following documents before availing this scheme. They are as below:
- Three copies of freight Bill
- Copy of Bill of entry
- Copy of Bill of Lading or Airway bill.
- Copy of Bank Certified Invoices.
- Import Invoice
- Proof of payment of import duty paid on importation.
- Approval from the Reserve Bank of India for re-exportation
- Six copies of AR-4 documents
- Export invoice and packing list.
- Freight and Insurance certificate
- Copy of the Test report of goods
- MODVAT Declaration
- A worksheet showing the drawback amount claimed
- DEEC Book and licence copy where applicable.
- Transhipment certificate, where applicable
- Two blank acknowledgement cards
- Pre-receipt for drawback amount on the reverse of Shipping Bill duly signed on the Rs. 1 revenue stamp
What Are Duty Drawback Rates?
The Central government provides a detailed rate chart of the percentage drawback. Exporters should note that the period mentioned below refers to the difference between clearance date and date of placement in customs control before it is ready for export.
Time Period |
Percentage of Drawback |
Less than 3 months |
95% |
Higher than 3 but less than 6 months |
85% |
From 6 to 9 months |
75% |
From 9 to 12 months |
70% |
From 12 months to 15 months |
65% |
From 15 months to 18 months |
60% |
Higher than 18 months |
NA |
What Is the Procedure for Claiming Duty Drawback?
The exporter needs to follow the following steps to take advantage of the duty drawback scheme:
Step 1: Exporters must fill all requisites in a prescribed shipping bill format under the DBK scheme.
Step 2: Digital document processing does not require any separate application.
Step 3: Separate applications for claiming duty drawbacks must be submitted for manual exports.
Step 4: The exporter must apply for the claim process in accordance with the policies laid down by the Drawback Rules 1995.
Step 5: Once the exporter files the general export manifest, the 3rd shipping bill copy becomes the principal application.