Equity

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DEFINITION of 'Equity '

1. A stock or any other security representing an ownership interest.

2. On a company's balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as "shareholders' equity".

3. In the context of margin trading, the value of securities in a margin account minus what has been borrowed from the brokerage.

4. In the context of real estate, the difference between the current market value of the property and the amount the owner still owes on the mortgage. It is the amount that the owner would receive after selling a property and paying off the mortgage.

5. In terms of investment strategies, equity (stocks) is one of the principal asset classes. The other two are fixed-income (bonds) and cash/cash-equivalents. These are used in asset allocation planning to structure a desired risk and return profile for an investor's portfolio.

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BREAKING DOWN 'Equity '

The term's meaning depends very much on the context. In finance, in general, you can think of equity as ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered the owner's equity because he or she can readily sell the item for cash. Stocks are equity because they represent ownership in a company.

Read More: Mitigate Your Equity Risk

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RELATED FAQS
  1. What are the differences between debt and equity markets?

    The basic differences between the debt and equity markets include the type of financial interest they represent, the way ... Read Full Answer >>
  2. What is the difference between the equity market and the fixed income market?

    The major differences between equity and fixed income markets are the way they make profits for investors, the manner in ... Read Full Answer >>
  3. How do you calculate company equity?

    Company equity, or shareholders' equity, is calculated by subtracting the company's total liabilities from its total assets. ... Read Full Answer >>
  4. What does a sample plan using the 4% retirement rule look like?

    The 4% retirement rule is often used by financial planners to set the amount that a retiree can withdraw annually from an ... Read Full Answer >>
  5. Which asset classes are the most risky?

    Equities is the riskiest class of assets. Dividends aside, they offer no guarantees, and investors' money is subject to the ... Read Full Answer >>
  6. What are the most common ETFs that track the banking sector?

    Some of the exchange-traded funds (ETFs) that track the banking sector are financial ETFs with varying degrees of exposure ... Read Full Answer >>
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    A reverse mortgage can provide a good source of retirement income for homeowners who have little or no assets outside of ... Read Full Answer >>
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    Reverse mortgages can help both wealthy and poor retirees, as they allow seniors to borrow against their home equity, receiving ... Read Full Answer >>
  9. What is the formula for calculating the debt-to-equity ratio?

    Expressed as a percentage, the debt-to-equity ratio shows the proportion of equity and debt a firm is using to finance its ... Read Full Answer >>
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    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
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    Companies that report losses are more difficult to value than those that report consistent profits. Any metric that uses ... Read Full Answer >>
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    Return on equity (ROE) and return on capital (ROC) measure very similar concepts, but with a slight difference in the underlying ... Read Full Answer >>
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    N egative shareholder equity could show up on a company's balance sheet for a number of reasons, all of which should serve ... Read Full Answer >>
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    Occasionally, a company will need to undergo some financial restructuring to better position itself for long term success. ... Read Full Answer >>
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    Preferred stock is equity. Preferred stock also (usually) has a fixed dividend payout. This is why some investors have referred ... Read Full Answer >>

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