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Definition of Equity
Amounts contributed to the company by the owners (contributed capital) plus the residual earnings of the business (retained earnings).
Funds raised from shareholders.
Ownership. Common stock represents equity in a corporation.
Refers to one of the two basic sources of capital for a business, the
Represents ownership interest in a firm. Also the residual dollar value of a futures trading account,
The difference between the total of all recorded assets and liabilities on the balance
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.
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.
The discount rate that reflects only the business risks of a project and abstracts from the
The ratio of total assets to stockholder equity.
A management style that de-emphasizes the significance of economic
Value of outstanding common shares at par, plus accumulated retained
Indicator of financial leverage. Compares assets provided by creditors to assets provided
A common term for convertible bonds because of their equity component and the
An international equity placement where the offering is split into two
An agreement in which one party, for an upfront premium, agrees to compensate the other at
Also called a residual claim, a claim to a share of earnings after debt obligation have been
The simultaneous purchase of an equity floor and sale of an equity cap.
An agreement to contribute equity to a project under certain specified
An agreement in which one party agrees to pay the other at specific time periods if a specific
Used to refer to warrants because they are usually issued attached to privately placed bonds.
Total assets divided by total common stockholders' equity; the amount of total assets per
Securities that give the holder the right to buy or sell a specified number of shares of stock, at
A swap in which the cash flows that are exchanged are based on the total return on some stock
Related: Variable life
Those holding shares of the firm's equity.
Securities sold in the Euromarket. That is, securities initially sold to investors
Foreign equity market
That portion of the domestic equity market that represents issues floated by foreign companies.
GEMs (growing-equity mortgages)
Mortgages in which annual increases in monthly payments are used to
The balance of a margin account. Related: buying on margin, initial margin requirement.
Stock in a firm that relies on financial leverage. Holders of leveraged equity face the
Long-term debt to equity ratio
A capitalization ratio comparing long-term debt to shareholders' equity.
Preferred equity redemption stock (PERC)
Preferred stock that converts automatically into equity at a
Return on equity (ROE)
Indicator of profitability. Determined by dividing net income for the past 12
This is a company's total assets minus total liabilities. A company's net worth is the
Balance sheet item that includes the book value of ownership in the corporation. It
The residual claims that stockholders have against a firm's assets, calculated by
Stratified equity indexing
A method of constructing a replicating portfolio in which the stocks in the index
Top-down equity management style
A management style that begins with an assessment of the overall
Total debt to equity ratio
A capitalization ratio comparing current liabilities plus long-term debt to
RATE OF RETURN ON STOCKHOLDERSâ€™ EQUITY
The percentage return or profit that management made on each dollar stockholders invested in a company. Hereâ€™s how you figure it:
RATIO OF DEBT TO STOCKHOLDERSâ€™ EQUITY
A ratio that shows which groupâ€”creditors or stockholdersâ€”has the biggest stake in or the most control of a company:
STOCKHOLDERSâ€™ (OR OWNERSâ€™) EQUITY
The value of the ownersâ€™ interests in a company.
An account that reduces an equity account. An example is Treasury stock.
The total amount of contributed capital and retained earnings; synonymous with stockholders' equity.
The total amount of contributed capital and retained earnings; synonymous with shareholdersâ€™ equity.
A widely used financial statement ratio to assess the
Refers to the capital invested in a business by its shareowners
return on equity (ROE)
This key ratio, expressed as a percent, equals net
stockholders' equity, statement of changes in
Although often considered
Cost of Equity
Same as the cost of common stock. Sometimes viewed as the
Return on Common Equity Ratio
A measure of the percentage return earned on the value of the
The total of all capital contributions and retained earnings on a businessâ€™s
Accounting method for an equity security in cases where the investor has sufficient
An ownership interest in an enterprise, including preferred and common stock.
The residual interest or owners' claims on the assets of a corporation
A comparison of debt to equity in a company's capital structure.
Refers to the investors percentage ownership of a company that can be re-acquired by the company, usually at a pre-determined amount.
Funds, other than paid-up capital and retained earnings, employed in a business and which will remain in a business as permanent capital.
Represents the total assets of a corporation less liabilities.
Life insurance or annuity product in which the cash value and benefit level fluctuate according to the performance of an equity portfolio.
Through equity investment, investors gain part ownership of the corporation. The primary type of equity investment is corporate stock.
DLOC (discount for lack of control)
an amount or percentage deducted from a pro rata share of the value of 100% of an equity interest in a business, to reflect the absence of some or all of the powers of control.
DLOM (discount for lack of marketability)
an amount or percentage deducted from an equity interest to reflect lack of marketability.
Adjusted present value (APV)
The net present value analysis of an asset if financed solely by equity
Methods of financing in which lenders and equity investors look principally to the
The tendency of stocks preferred by the dividend discount model to share certain equity
Also called the statement of financial condition, it is a summary of the assets, liabilities, and
Balance sheet identity
Total Assets = Total Liabilities + Total Stockholders' equity
Book value per share
The ratio of stockholder equity to the average number of common shares. Book value
The makeup of the liabilities and stockholders' equity side of the balance sheet, especially
Amounts of directly contributed equity capital in excess of the par value.
The debt and/or equity mix that fund a firm's assets.
Also called financial leverage ratios, these ratios compare debt to total capitalization
A table showing the capitalization of a firm, which typically includes the amount of
A public equity issue that is sold to all interested investors.
These are securities that represent equity ownership in a company. Common shares let an
Common stock equivalent
A convertible security that is traded like an equity issue because the optioned
Common stock ratios
Ratios that are designed to measure the relative claims of stockholders to earnings
Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes
The amplification of the return earned on equity when an investment or firm is financed
A set of transactions (also called a debt-equity swap) in which a firm buys a country's dollar bank
With respect to a project financing, an arrangement under which the sponsors of a project
FASB No. 52
The U.S. accounting standard which was replaced by FASB No. 8. U.S. companies are required
Use of debt to increase the expected return on equity. Financial leverage is measured by
The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
Decisions concerning the liabilities and stockholders' equity side of the firm's balance
Publicly owned stock in a firm is replaced with complete equity ownership by a
Initial public offering (IPO)
A company's first sale of stock to the public. Securities offered in an IPO are
Long-term equity anticipation securities. Long-term options.
Leveraged buyout (LBO)
A transaction used for taking a public corporation private financed through the use
Indicator of financial leverage. Shows long-term debt as a proportion of the
Maintenance margin requirement
A sum, usually smaller than -but part of the original margin, which must
Modigliani and Miller Proposition II
A proposition by Modigliani and Miller which states that the cost of
Common stockholders' equity which consists of common stock, surplus, and retained earnings.
Pecking-order view (of capital structure)
The argument that external financing transaction costs, especially
Personal tax view (of capital structure)
The argument that the difference in personal tax rates between
Pie model of capital structure
A model of the debt/equity ratio of the firms, graphically depicted in slices of
Pooling of interests
An accounting method for reporting acquisitions accomplished through the use of equity.
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