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Equity investment

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Definition of Equity investment

Equity Investment Image 1

Equity investment

Through equity investment, investors gain part ownership of the corporation. The primary type of equity investment is corporate stock.



Related Terms:

All equity rate

The discount rate that reflects only the business risks of a project and abstracts from the
effects of financing.


Asset/equity ratio

The ratio of total assets to stockholder equity.


Bottom-up equity management style

A management style that de-emphasizes the significance of economic
and market cycles, focusing instead on the analysis of individual stocks.


Business Expansion Investment

The use of capital to create more money through the addition of fixed assets or through income producing vehicles.


capital investment analysis

Refers to various techniques and procedures
used to determine or to analyze future returns from an investment
of capital in order to evaluate the capital recovery pattern and the
periodic earnings from the investment. The two basic tools for capital
investment analysis are (1) spreadsheet models (which I strongly prefer)
and (2) mathematical equations for calculating the present value or
internal rate of return of an investment. Mathematical methods suffer
from a lack of information that the decision maker ought to consider. A
spreadsheet model supplies all the needed information and has other
advantages as well.



Capital Investments

Money used to purchase fixed assets for a business, such as land, buildings, or machinery. Also, money invested in a business on the understanding that it will be used to purchase permanent assets rather than to cover day-to-day operating expenses.


Common stock/other equity

Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.


Equity Investment Image 2

Contra-equity account

An account that reduces an equity account. An example is Treasury stock.


Cost of Equity

Same as the cost of common stock. Sometimes viewed as the
rate of return stockholders require to maintain the market value of
the company's common stock.


Debt/equity ratio

Indicator of financial leverage. Compares assets provided by creditors to assets provided
by shareholders. Determined by dividing long-term debt by common stockholder equity.


Debt/Equity Ratio

A comparison of debt to equity in a company's capital structure.


debt-to-equity ratio

A widely used financial statement ratio to assess the
overall debt load of a business and its capital structure, it equals total liabilities
divided by total owners’ equity. Both numbers for this ratio are
taken from a business’s latest balance sheet. There is no standard, or
generally agreed on, maximum ratio, such as 1:1 or 2:1. Every industry
is different in this regard. Some businesses, such as financial institutions,
have very high debt-to-equity ratios. In contrast, many businesses
use very little debt relative to their owners’ equity.


Deferred equity

A common term for convertible bonds because of their equity component and the
expectation that the bond will ultimately be converted into shares of common stock.


Dividend reinvestment plan (DRP)

Automatic reinvestment of shareholder dividends in more shares of a
company's stock, often without commissions. Some plans provide for the purchase of additional shares at a
discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the Long
term using dollar cost averaging. The DRP is usually administered by the company without charges to the
holder.


Dual syndicate equity offering

An international equity placement where the offering is split into two
tranches - domestic and foreign - and each tranche is handled by a separate lead manager.


Equity

Represents ownership interest in a firm. Also the residual dollar value of a futures trading account,
assuming its liquidation at the going market price.


Equity

Funds raised from shareholders.


Equity

Amounts contributed to the company by the owners (contributed capital) plus the residual earnings of the business (retained earnings).



equity

Refers to one of the two basic sources of capital for a business, the
other being debt (borrowed money). Most often, it is called owners’
equity because it refers to the capital used by a business that “belongs”
to the ownership interests in the business. Owners’ equity arises from
two quite distinct sources: capital invested by the owners in the business
and profit (net income) earned by the business that is not distributed to
its owners (called retained earnings). Owners’ equity in our highly developed
and sophisticated economic and legal system can be very complex—
involving stock options, financial derivatives of all kinds, different
classes of stock, convertible debt, and so on.


Equity

The difference between the total of all recorded assets and liabilities on the balance
sheet.


Equity

Ownership. Common stock represents equity in a corporation.


Equity

The net worth of a business, consisting of capital stock, capital (or paid-in) surplus (or retained earnings), and, occasionally, certain net worth reserves. Common equity is that part of the total net worth belonging to the common shareholders. Total equity includes preferred shareholders. The terms common stock, net worth, and common equity are frequently used interchangeably.


equity

The net worth of a company. This represents the ownership interest of the shareholders (common and preferred) of a company. For this reason, shares or stocks are often known as equities.


Equity-based insurance

Life insurance or annuity product in which the cash value and benefit level fluctuate according to the performance of an equity portfolio.


Equity Buy-Back

Refers to the investors percentage ownership of a company that can be re-acquired by the company, usually at a pre-determined amount.


Equity cap

An agreement in which one party, for an upfront premium, agrees to compensate the other at
specific time periods if a designated stock market benchmark is greater than a predetermined level.


Equity claim

Also called a residual claim, a claim to a share of earnings after debt obligation have been
satisfied.


Equity collar

The simultaneous purchase of an equity floor and sale of an equity cap.



Equity contribution agreement

An agreement to contribute equity to a project under certain specified
conditions.


Equity floor

An agreement in which one party agrees to pay the other at specific time periods if a specific
stock market benchmark is less than a predetermined level.


Equity kicker

Used to refer to warrants because they are usually issued attached to privately placed bonds.


Equity-linked policies

Related: Variable life


Equity market

Related:Stock market


Equity Method

Accounting method for an equity security in cases where the investor has sufficient
voting interest to have significant influence over the operating and financial policies of an
investee.


Equity multiplier

Total assets divided by total common stockholders' equity; the amount of total assets per
dollar of stockholders' equity.


Equity options

Securities that give the holder the right to buy or sell a specified number of shares of stock, at
a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.


Equity Security

An ownership interest in an enterprise, including preferred and common stock.


Equity swap

A swap in which the cash flows that are exchanged are based on the total return on some stock
market index and an interest rate (either a fixed rate or a floating rate). Related: interest rate swap.


Equityholders

Those holding shares of the firm's equity.


Euroequity issues

Securities sold in the Euromarket. That is, securities initially sold to investors
simultaneously in several national markets by an international syndicate. Euromarket.
Related: external market


Expected return on investment

The return one can expect to earn on an investment. See: capital asset
pricing model.


Foreign direct investment (FDI)

The acquisition abroad of physical assets such as plant and equipment, with
operating control residing in the parent corporation.


Foreign equity market

That portion of the domestic equity market that represents issues floated by foreign companies.


Future investment opportunities

The options to identify additional, more valuable investment opportunities
in the future that result from a current opportunity or operation.


GEMs (growing-equity mortgages)

Mortgages in which annual increases in monthly payments are used to
reduce outstanding principal and to shorten the term of the loan.


guaranteed investment certificate (GIC)

A GIC is an investment that gives you a guaranteed rate of return over a fixed period of time, usually between 30 days and 5 years. GICs are available from banks, trust companies, and other financial institutions.


Guaranteed investment contract (GIC)

A pure investment product in which a life company agrees, for a
single premium, to pay the principal amount of a predetermined annual crediting (interest) rate over the life of
the investment, all of which is paid at the maturity date.


Investment

The commitment of funds (capital) in anticipation of an increased
return of funds at some point in the future


Investment analysts

Related: financial analysts


Investment bank

Financial intermediaries who perform a variety of services, including aiding in the sale of
securities, facilitating mergers and other corporate reorganizations, acting as brokers to both individual and
institutional clients, and trading for their own accounts. Underwriters.


Investment Banker

Middleman between a corporation issuing new securities and the public. The middleman buys the securities issue outright and then resells it to customers. Also called an underwriter.


investment center

a responsibility center in which the manager
is responsible for generating revenues and planning
and controlling expenses and has the authority to acquire,
dispose of, and use plant assets to earn the highest rate
of return feasible on those assets within the confines and
to the support of the organization’s goals


Investment centre

A division or unit of an organization that is responsible for achieving an adequate return on
the capital invested in the division or unit.


investment decision

a judgment about which assets will be
acquired by an entity to achieve its stated objectives


Investment decisions

Decisions concerning the asset side of a firm's balance sheet, such as the decision to
offer a new product.


investment grade

Bonds rated Baa or above by Moody’s or BBB or above by Standard & Poor’s.


Investment grade bonds

A bond that is assigned a rating in the top four categories by commercial credit
rating companies. For example, S&P classifies investment grade bonds as BBB or higher, and Moodys'
classifies investment grade bonds as Ba or higher. Related: High-yield bond.


Investment income

The revenue from a portfolio of invested assets.
investment management Also called portfolio management and money management, the process of
managing money.


Investment manager

Also called a portfolio manager and money manager, the individual who manages a
portfolio of investments.


Investment product line (IPML)

The line of required returns for investment projects as a function of beta
(nondiversifiable risk).


Investment Spending

Expenditures on capital goods including new housing. Financial ''investments" and sales of existing assets are not included.


Investment tax credit

Proportion of new capital investment that can be used to reduce a company's tax bill
(abolished in 1986).


Investment Tax Credit

A reduction in taxes offered to firms to induce them to increase investment spending.


Investment trust

A closed-end fund regulated by the investment Company Act of 1940. These funds have a
fixed number of shares which are traded on the secondary markets similarly to corporate stocks. The market
price may exceed the net asset value per share, in which case it is considered at a "premium." When the
market price falls below the NAV/share, it is at a "discount." Many closed-end funds are of a specialized
nature, with the portfolio representing a particular industry, country, etc. These funds are usually listed on US
and foreign exchanges.


Investment value

Related:straight value.


Investments

As a discipline, the study of financial securities, such as stocks and bonds, from the investor's
viewpoint. This area deals with the firm's financing decision, but from the other side of the transaction.


Investor's equity

The balance of a margin account. Related: buying on margin, initial margin requirement.


Legal investments

investments that a regulated entity is permitted to make under the rules and regulations
that govern its investing.


Leveraged equity

Stock in a firm that relies on financial leverage. Holders of leveraged equity face the
benefits and costs of using debt.


Long-term debt to equity ratio

A capitalization ratio comparing long-term debt to shareholders' equity.


Mutually exclusive investment decisions

investment decisions in which the acceptance of a project
precludes the acceptance of one or more alternative projects.


Net investment

Gross, or total, investment minus depreciation.


Net Investment

investment spending minus depreciation.


Net present value of future investments

The present value of the total sum of NPVs expected to result from
all of the firm's future investments.


owners' equity

Refers to the capital invested in a business by its shareowners
plus the profit earned by the business that has not been distributed
to its shareowners, which is called retained earnings. Owners’
equity is one of the two basic sources of capital for a business, the other
being borrowed money, or debt. The book value, or value reported in a
balance sheet for owners’ equity, is not the market value of the business.
Rather, the balance sheet value reflects the historical amounts of capital
invested in the business by the owners over the years plus the accumulation
of yearly profits that were not paid out to owners.


Owners' equity

The total of all capital contributions and retained earnings on a business’s
balance sheet.


Passive investment management

Buying a well-diversified portfolio to represent a broad-based market
index without attempting to search out mispriced securities.


Passive investment strategy

See: passive management.


postinvestment audit

the process of gathering information
on the actual results of a capital project and comparing
them to the expected results


Preferred equity redemption stock (PERC)

Preferred stock that converts automatically into equity at a
stated date. A limit is placed on the value of the shares the investor receives.


qualified investments (Canada)

Qualified investments is the term used for investments that can be held in an RSP. These investments generally include:
Canadian dollar savings accounts, guaranteed investment certificates, term deposits
shares of Canadian and foreign companies listed on a prescribed stock exchange
shares of some over-the-counter U.S. and Canadian companies
shares of some small businesses
certain types of bonds and money-market investments such as treasury bills, Canada Savings Bonds, Government of Canada bonds, provincial government bonds, Crown Corporation bonds, bonds issued by Canadian corporations listed on a prescribed stock exchange, and certain strip bonds
certain types of mortgages, including your own
certain covered call options, warrants and rights
certain mutual funds


Quasi-Equity

Funds, other than paid-up capital and retained earnings, employed in a business and which will remain in a business as permanent capital.


RATE OF RETURN ON STOCKHOLDERS’ EQUITY

The percentage return or profit that management made on each dollar stockholders invested in a company. Here’s how you figure it:
(Net income) / (Stockholders’ equity)


RATIO OF DEBT TO STOCKHOLDERS’ EQUITY

A ratio that shows which group—creditors or stockholders—has the biggest stake in or the most control of a company:
(Total liabilities) / (Stockholders’ equity)


Regular Investment Plan (RIP)

A plan under which you may make regular deposits of the same amount to your Mutual Funds account once a month, once every 2 weeks, or once a week. You can also make regular deposits up to four times a month on any dates you choose.


reinvestment assumption

an assumption made about the rates of return that will be earned by intermediate cash flows from a capital project; NPV and PI assume reinvestment at the discount rate; IRR assumes reinvestment at the IRR


Reinvestment rate

The rate at which an investor assumes interest payments made on a debt security can be
reinvested over the life of that security.


Reinvestment risk

The risk that proceeds received in the future will have to be reinvested at a lower potential
interest rate.


REIT (real estate investment trust)

Real estate investment trust, which is similar to a closed-end mutual
fund. REITs invest in real estate or loans secured by real estate and issue shares in such investments.


REMIC (real estate mortgage investment conduit)

A pass-through tax entity that can hold mortgages
secured by any type of real property and issue multiple classes of ownership interests to investors in the form
of pass-through certificates, bonds, or other legal forms. A financing vehicle created under the Tax Reform
Act of 1986.


Return on Common Equity Ratio

A measure of the percentage return earned on the value of the
common equity invested in the company. It is calculated by
dividing the net income available for distribution to shareholders
by the book value of the common equity.


Return on equity (ROE)

Indicator of profitability. Determined by dividing net income for the past 12
months by common stockholder equity (adjusted for stock splits). Result is shown as a percentage. Investors
use ROE as a measure of how a company is using its money. ROE may be decomposed into return on assets
(ROA) multiplied by financial leverage (total assets/total equity).


return on equity (ROE)

This key ratio, expressed as a percent, equals net
income for the year divided by owners’ equity. ROE should be higher than
a business’s interest rate on debt because the owners take more risk.


return on investment

a ratio that relates income generated
by an investment center to the resources (or asset base)
used to produce that income


Return on investment (ROI)

Generally, book income as a proportion of net book value.


RETURN ON INVESTMENT (ROI)

In its most basic form, the rate of return equals net income divided by the amount of money invested. It can be applied to a particular product or piece of equipment, or to a business as a whole.


Return on investment (ROI)

The net profit after tax as a percentage of the shareholders’ investment in the business.


return on investment (ROI)

A very general concept that refers to some
measure of income, earnings, profit, or gain over a period of time
divided by the amount of capital invested during the period. It is almost
always expressed as a percent. For a business, an important ROI measure
is its return on equity (ROE), which is computed by dividing its net
income for the period by its owners’ equity during the period.


Shareholder's Equity

Represents the total assets of a corporation less liabilities.



 

 

 

 

 

 

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