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Equity Financing (Lesson 1 of 2)
Equity Financing (Lesson 1 of 2)
Published: 2014/10/25
Channel: Matt Evans
Entrepreneurship - Debt and Equity Financing
Entrepreneurship - Debt and Equity Financing
Published: 2012/07/23
Channel: Council for Economic Education
What is Equity (Financial Accounting Tutorial #10)
What is Equity (Financial Accounting Tutorial #10)
Published: 2013/12/13
Channel: Notepirate
Equity vs. debt | Stocks and bonds | Finance & Capital Markets | Khan Academy
Equity vs. debt | Stocks and bonds | Finance & Capital Markets | Khan Academy
Published: 2009/02/01
Channel: Khan Academy
Equity finance
Equity finance
Published: 2015/03/17
Channel: Business Wales/Busnes Cymru
Understanding Debt vs. Equity Financing with Bond Street
Understanding Debt vs. Equity Financing with Bond Street
Published: 2015/10/13
Channel: Skillshare
Understanding Debt vs Equity Financing (Part 4)
Understanding Debt vs Equity Financing (Part 4)
Published: 2016/04/05
Channel: Bond Street
What is the difference between debt vs equity funding?
What is the difference between debt vs equity funding?
Published: 2016/03/09
Channel: Estate Baron
What is private equity? - MoneyWeek Investment Tutorials
What is private equity? - MoneyWeek Investment Tutorials
Published: 2013/08/10
Channel: MoneyWeek
Episode 123: Introduction to Debt and Equity Financing
Episode 123: Introduction to Debt and Equity Financing
Published: 2013/08/01
Channel: Alanis Business Academy
What Is a Home Equity Loan? | Financial Terms
What Is a Home Equity Loan? | Financial Terms
Published: 2012/01/18
Channel: Howcast
debt financing and equity financing
debt financing and equity financing
Published: 2016/12/04
Channel: Hana R
Private equity explained
Private equity explained
Published: 2012/01/14
Channel: Marketplace APM
Debt (Loans) vs Equity (Investment) - What is the Difference?
Debt (Loans) vs Equity (Investment) - What is the Difference?
Published: 2015/10/17
Channel: PGI Capital
Debt vs. Equity Analysis: How to Advise Companies on Financing
Debt vs. Equity Analysis: How to Advise Companies on Financing
Published: 2017/02/14
Channel: Mergers & Inquisitions / Breaking Into Wall Street
EQUITY FINANCE
EQUITY FINANCE
Published: 2015/02/20
Channel: Equity finance
Equity Fincancing
Equity Fincancing
Published: 2010/06/12
Channel: Quatere
Difference between Debt and Equity
Difference between Debt and Equity
Published: 2016/08/18
Channel: CA N Raja Natarajan
Cost of Capital and Cost of Equity | Business Finance
Cost of Capital and Cost of Equity | Business Finance
Published: 2014/12/04
Channel: Spoon Feed Me
Basics of Equity Financing
Basics of Equity Financing
Published: 2015/08/11
Channel: Pujee Platform
Debt vs. Equity Financing
Debt vs. Equity Financing
Published: 2015/08/11
Channel: Accion in the U.S.
Financial Leverage (Trading on Equity) Explained in One Minute
Financial Leverage (Trading on Equity) Explained in One Minute
Published: 2016/09/06
Channel: One Minute Economics
Hedge funds, venture capital, and private equity | Finance & Capital Markets | Khan Academy
Hedge funds, venture capital, and private equity | Finance & Capital Markets | Khan Academy
Published: 2011/04/19
Channel: Khan Academy
Equity valuation- Finance Class by Palak Rajani
Equity valuation- Finance Class by Palak Rajani
Published: 2015/02/05
Channel: Finance Class by Palak Rajani
Debt Vs Equity Financing - Financial Management - Ratio Analysis
Debt Vs Equity Financing - Financial Management - Ratio Analysis
Published: 2015/12/28
Channel: CA N Raja Natarajan
Stockholders
Stockholders' Equity (Financial Accounting)
Published: 2014/02/11
Channel: Edspira
Real Estate Investing Tips-Equity Finance vs Debt Financing
Real Estate Investing Tips-Equity Finance vs Debt Financing
Published: 2011/06/23
Channel: HIS Capital Group, LLC
debt and equity financing in business
debt and equity financing in business
Published: 2016/11/30
Channel: fadi lah
Debt vs Equity Finance
Debt vs Equity Finance
Published: 2016/08/29
Channel: Edumecate
Private Equity Deal Financing
Private Equity Deal Financing
Published: 2015/07/22
Channel: TheDealVideo
BIG MONEY: Private and Equity Financing | TIFF Industry Conference 2013
BIG MONEY: Private and Equity Financing | TIFF Industry Conference 2013
Published: 2014/03/13
Channel: TIFF
Sources of Financing and Equity
Sources of Financing and Equity
Published: 2014/11/02
Channel: kenneth nichols
Free ACCA F9 Video Lecture 15  Equity Finance
Free ACCA F9 Video Lecture 15 Equity Finance
Published: 2015/04/04
Channel: ACCA Video Lecture
MSc Finance and Private Equity
MSc Finance and Private Equity
Published: 2012/03/13
Channel: London School of Economics and Political Science (LSE)
Financing Renewable Energy Projects:  Introduction to Tax Equity Finance for Solar and Wind Projects
Financing Renewable Energy Projects: Introduction to Tax Equity Finance for Solar and Wind Projects
Published: 2017/03/01
Channel: Lehigh Univ Energy Systems Engineering Institute
Housing equity loans | Housing | Finance & Capital Markets | Khan Academy
Housing equity loans | Housing | Finance & Capital Markets | Khan Academy
Published: 2008/03/15
Channel: Khan Academy
Stockholders Equity (Debt Vs Equity Financing, Return On Assets & Equity, N/I Per Share)
Stockholders Equity (Debt Vs Equity Financing, Return On Assets & Equity, N/I Per Share)
Published: 2013/03/25
Channel: Allen Mursau
Stockholders
Stockholders' equity financial accounting cpa exam ch 11 p 1
Published: 2016/10/11
Channel: Farhat's Accounting Lectures
Crash Course:  Equity Financing in the Mining Sector
Crash Course: Equity Financing in the Mining Sector
Published: 2013/01/18
Channel: TheVentureRadar
Global Equity Finance - Smarter Home Loans, Happier Home Owners
Global Equity Finance - Smarter Home Loans, Happier Home Owners
Published: 2015/01/28
Channel: Global Equity Finance
Learn About Equity Financing in a Small Business
Learn About Equity Financing in a Small Business
Published: 2013/08/06
Channel: Association of Accredited Small Business Consultants®
Cost of Equity (dividend model) (Talking Head)
Cost of Equity (dividend model) (Talking Head)
Published: 2016/10/16
Channel: CA N Raja Natarajan
Equity financing and debt financing (BSE)
Equity financing and debt financing (BSE)
Published: 2015/11/09
Channel: Vidya-mitra
Project Financing Part 2   Tax Equity Cash Flows
Project Financing Part 2 Tax Equity Cash Flows
Published: 2016/11/21
Channel: Bob Conroy
Financial Statements - Lecture 6 - Statement of Changes in Equity - IFRS
Financial Statements - Lecture 6 - Statement of Changes in Equity - IFRS
Published: 2014/09/06
Channel: Else Grech Accounting
Startup Seed Funding  From Bootstrapping to Equity Financing
Startup Seed Funding From Bootstrapping to Equity Financing
Published: 2015/02/05
Channel: EarlyGrowth
Métier Finance - Equity Finance Trader - SGCIB
Métier Finance - Equity Finance Trader - SGCIB
Published: 2015/03/04
Channel: ESILV
Math Equity Finance
Math Equity Finance
Published: 2013/09/26
Channel: roberto ribas
What Is The Meaning Of Equity Financing?
What Is The Meaning Of Equity Financing?
Published: 2017/07/04
Channel: sparky Business
Affordable Equity Finance - Springfield, MO
Affordable Equity Finance - Springfield, MO
Published: 2011/03/26
Channel: yellowbook
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WIKIPEDIA ARTICLE

From Wikipedia, the free encyclopedia
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In accounting, equity (or owner's equity) is the difference between the value of the assets and the value of the liabilities of something owed. It is governed by the following equation:

For example, if someone owns a car worth $15,000 (an asset), but owes $5,000 on a loan against that car (a liability), the car represents $10,000 of equity. Equity can be negative if liabilities exceeds assets. Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the equity of a company as divided among shareholders of common or preferred stock. Negative shareholders' equity is often referred to as a shareholders' deficit.

Alternatively, equity can also refer to the capital stock of a corporation. The value of the stock depends on the corporation's future economic prospects. For a company in liquidation proceedings, the equity is that which remains after all liabilities have been paid.

Owner's equity[edit]

When starting a business, the owners fund the business to finance various operations. Under the model of a private limited company, the business and its owners are separate entities, so the business is considered to owe these funds to its owners as a liability in the form of share capital. Throughout the business's existence, the equity of the business will be the difference between its assets and debt liabilities; this is the accounting equation.

When a business liquidates during bankruptcy, the proceeds from the assets are used to reimburse creditors. The creditors are ranked by priority, with secured creditors being paid first, other creditors being paid next, and owners being paid last. Owner's equity (also known as risk capital or liable capital) is this remaining or residual claim against assets, which is paid only after all other creditors are paid. In such cases where even creditors could not get enough money to pay their bills, the owner's equity is reduced to zero because nothing is left to reimburse it.

Accounting[edit]

In financial accounting, owner's equity consists of the net assets of an entity. Net assets is the difference between the total assets and total liabilities.[1] Equity appears on the balance sheet (also known as the statement of financial position), one of the four primary financial statements.

The assets of an entity can be both tangible and intangible items. Intangible assets include items such as brand names, copyrights or goodwill. Tangible assets include land, equipment, and cash. The types of accounts and their description that comprise the owner's equity depend on the nature of the entity and may include:

Book value[edit]

The book value of equity will change in the case of the following events:

  • Changes in assets relative to liabilities. For example, a profitable firm receives more cash for its products than the cost at which it produced these goods, and so in the act of making a profit, increases its retained earnings, therefore its shareholders' equity.
  • Issue of new equity in which the firm obtains new capital increases the total shareholders' equity.
  • Share repurchases, in which a firm returns money to investors, reducing on the asset side its financial assets, and on the liability side the shareholders' equity. For practical purposes (except for its tax consequences), share repurchasing is similar to a dividend payment. Rather than giving money to all shareholders immediately in the form of a dividend payment, a share repurchase reduces the number of shares outstanding.
  • Dividends paid out to preferred stock owners are considered an expense to be subtracted from net income[citation needed](from the point of view of the common share owners).
  • Other reasons - Assets and liabilities can change without any effect being measured in the Income Statement under certain circumstances; for example, changes in accounting rules may be applied retroactively. Sometimes assets bought and held in other countries get translated back into the reporting currency at different exchange rates, resulting in a changed value.

Shareholders' equity[edit]

When the owners are shareholders, the interest can be called shareholders' equity; the accounting remains the same, and it is ownership equity spread out among shareholders. If all shareholders are in one and the same class, they share equally in ownership equity from all perspectives. However, shareholders may allow different priority ranking among themselves by the use of share classes and options. This complicates analysis for both stock valuation and accounting.

Shareholders' equity is obtained by subtracting total liabilities from the total assets of the shareholders.[3] These assets and liabilities can be:

  • Equity (beginning of year)
  • + net income
  • − dividends
  • +/− gain/loss from changes to the number of shares outstanding.
  • = Equity (end of year) if one gets more money during the year or less or not anything

Equity stock[edit]

Equity investments[edit]

An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains. Typically, equity holders receive voting rights, meaning that they can vote on candidates for the board of directors (shown on a diversification of the fund(s) and to obtain the skill of the professional fund managers in charge of the fund(s). An alternative, which is usually employed by large private investors and pension funds, is to hold shares directly; in the institutional environment many clients who own portfolios have what are called segregated funds, as opposed to or in addition to the pooled mutual fund alternatives.

A calculation can be made to assess whether an equity is over or underpriced, compared with a long-term government bond. This is called the yield gap or Yield Ratio. It is the ratio of the dividend yield of an equity and that of the long-term bond.

Market value of equity stock[edit]

In the stock market, market price per share does not correspond to the equity per share calculated in the accounting statements. Equity stock valuations, which are often much higher, are based on other considerations related to the business' operating cash flow, profits and future prospects; some factors are derived from the accounting statement. While accounting equity can potentially be negative, market price per share is always positive since equity shares represent ownership in limited liability companies. The principal of limited liability guarantees that a shareholder's losses may never exceed her investment.

Merton model[edit]

In the Merton model, the value of stock equity is modeled as a call option on the value of the whole company (including the liabilities), struck at the nominal value of the liabilities.[4]

In this model, the equity market value depends on the volatility of the market value of the company assets: the greater the volatility, the lower the equity market value.

Equity in real estate[edit]

The notion of equity with respect to real estate comes the equity of redemption. This equity is a property right valued at the difference between the market value of the property and the amount of any mortgage or other encumbrance.

See also[edit]

References[edit]

  1. ^ IFRS Framework quotation: International Accounting Standards Board F.49(c)
  2. ^ Example of Balance Sheet
  3. ^ Hervé Stolowy; Michel Lebas (January 2006). Financial Accounting and Reporting: A Global Perspective. Cengage Learning EMEA. p. 42. ISBN 1-84480-250-7. 
  4. ^ Merton, Robert C. (1974). "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates.". Journal of Finance. 29 (2): 449–470. 

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