Positive equity is an important element in the investment and business marketing world. The easiest way to understand equity is to think of it in terms of a bank. Positive equity adds value to the bank while negative equity takes value away. The more positive equity a company has, the easier it is for the company to produce consistent sales figures, introduce new products and attract new investors.
Positive Equity in Stocks
When you purchase stock in a publicly traded corporation you are said to have equity in that company, or a piece of the company's overall value. As a result, the value of your stock will decrease or increase accordingly based on the success of the company's business ventures. You are considered to have positive equity when this increase in value causes the value of your stock to rise higher than your original purchase price. This nets you a profit and a return on your initial investment in the company.
Your equity in a company will only increase if a corporation handles its finances responsibly. The more debt a company takes on, the less equity your stock has in the company. However, you are not liable for a publicly traded company's debt just because you own stock in the company. Your liability extends only to the original purchase price of your shares, and there's a slim chance of you recovering your original investment if the company files for bankruptcy protection.
Brand equity is a technique used in marketing to develop positive consumer associations with a company's products. Positive equity -- as it refers to brand equity -- is attained through quality products, effective advertising in target market areas and a consist company image that reinforces consumer confidence in the company's products. Positive brand equity can help a company introduce other products more easily into the market because consumers trust the quality of the company's products.
Financial Benefits of Brand Equity
When a customer believes a brand name product to be superior over a generic product, he's more likely to pay a higher price for the brand name product. Positive brand equity allows a company to charge a higher price for its products because the customer base believes enough value in the products exists to justify the cost. Protecting brand equity is key to allowing a company to continue charging premium prices. A company that decides to use lower cost materials and keep prices high to attain a short-term profit increase may soon find their competitors grabbing a larger share of the market.