Corporate equity is retained earnings plus common shares outstanding. On a corporate balance sheet, the retained earnings and the outstanding common stock capitalization combined would be considered the corporate equity, also called shareholder’s equity / owner’s equity. Of the total corporate equity, the portion representing common stock equity is only the capital raised through the issuance of shares in an IPO (initial public offering), where payment for those shares was paid to the company. Subsequent trading in those shares does not affect the common stock equity on the company books. Continue reading...
Junior Securities come last in the pecking order if a company gets liquidated; common stock shares are the most prevalent example. Junior securities are securities such as common stock which would be the last in order to receive any payout if the company were to go bankrupt. Examples of securities which are senior are Preferred Stock and Bonds; senior securities receive service first in the event of company insolvency. Continue reading...
Articles of Incorporation must be filed with the Secretary of State’s office before a corporation can do business in a state. Articles of Incorporation are legal documents which contain descriptions of the most pertinent information about a company at its formation. This includes a list of board members, the number of shares to be issues, bylaws, business model, facilities and assets, and so forth. Continue reading...
A life estate is often created by an older parent when they sign over the house to their adult children but stipulate that the parent can remain in the house until they pass away. In some estate planning cases, this is the easiest and most advantageous way to transfer property. The resident is called the Life Tenant and the beneficiary is the Remainder Owner. One of the most daunting threats to elderly people is the risk an extended care need. Continue reading...
The Equity Multiplier is a number used to compare companies, arrived at by dividing total assets by owner’s equity, and it gives an idea of what proportion of the company’s assets have been financed through equity vs debt. In general a low Equity Multiplier is a good sign because it means that a higher proportion of equity has been used to acquire assets, as opposed to funding assets with debt. However, the absence of significant debt could mean that the company lacked the credit rating to issue debt or take out loans. Continue reading...
In the world of finance, private equity is a relatively new industry whereby private companies finance other businesses through direct investment, often in exchange for equity in the company and in some cases, decision-making capabilities. Private equity companies generally use capital of the principals or of high net worth investors to strategically invest in growing companies that need growth capital or seed capital to expand operations. Continue reading...
In the standard accounting equation, when all company liabilities are subtracted from company assets, the remainder is called shareholders equity. What this means is that in the event that the company were liquidated, all debts would be serviced first, including bonds issued by the company, and the remaining balance would be divided amongst shareholders. If a company has a respectable debt-to-equity ratio, it can improve the appeal of a company’s stock and lead to a higher market price for the shares. Continue reading...
Return on Equity refers to the return on shareholder’s equity, which is like looking at the compounding effects of profits. Shareholder’s equity, in the standard accounting equation, is the amount of assets and retained earnings in a company over and above the company’s liabilities. Return on Equity is a ratio which divides the net income of a company by the total shareholder’s equity in a company, which is effectively looking at the profitability of the profits of a company. Continue reading...
Minority interest is a portion of a company’s stock that is not owned by the parent company, and refers to a type of ownership that generally cannot exert influence over a company’s business decisions. If an outside investor or another company has a less than 50% stake in a company via shares, then they are said to have a minority interest. From an accounting standpoint, only the dividends of a minority interest are counted on a company’s books. If they exert influence over the decision-making, then a percentage of the income may also need to be included. Continue reading...
Also known as ‘leverage,’ the debt-to-equity ratio indicates the relative proportion of a company’s debt to total shareholder equity. Given that debt is looked at relative to shareholder equity, the debt-to-equity ratio is often given greater consideration than the debt ratio for determining leverage and risk. Similar to debt ratio, a lower debt-to-equity means that a company has less leverage and a stronger equity position. Continue reading...
An equity or security generally refers to an individual position owned within a portfolio. An equity generally signifies some level of ownership in a corporation. When a person has ‘equity in a company,’ it generally means they own some portion of it and have a claim on the company’s value. An equity is another way of referring to a stock, which also represents a shareholder’s stake in a company. A security is a broader term, which refers to an instrument of ownership. Stocks are considered securities, but fixed income or debt holdings can also be labeled securities within a portfolio. Continue reading...
Home equity is a notional amount that a person owns at any given time, which is computed as the market value of a home minus any remaining principal repayments on a loan. Home equity is an asset on a person’s balance sheet, and can be used as as leverage for additional loans or lines of credit. A person’s home equity is the amount in their home which is “paid off.” It can be computed by taking the fair market value of a home and subtracting the amount of principal, if any, that still needs to be repaid on a mortgage loan. Continue reading...
Buying a stock means taking an ownership position in a publicly traded company. Once you purchase a stock, you become a shareholder. A company has two ways of acquiring capital needed for growth: borrowing it (often in the form of issuing bonds), or selling shares of their company's equity, which is known as stock. In other words, when you buy shares of a company’s stock, you are buying a claim to the company's profit margin, because you are technically a part-owner in the company. Those who hold shares of Common Stock, the most typical form of stock, have voting rights in the election of the company’s board members. Continue reading...
In contrast to the term “home owner,” home debtor is reserved for those who will seemingly never be able to pay off the mortgage(s) on their home, or who have already defaulted. Most Americans live in homes that they pay on, but are still primarily owned by the bank that loaned them money. Banks have insurance to protect them against mortgage defaults. Home mortgage loans are the primary way that Americans by homes today. Continue reading...
The Equity Risk Premium (aka, Equity Premium) is the expected return of the stock market over the risk-free rate (U.S. Treasuries). This number basically refers to the amount an investor should expect in exchange for accepting the risk inherent in the stock market. The size of the equity risk premium varies depending on the amount of risk of a portfolio, the market, or a specific holding investment, against the risk-free rate. Continue reading...
Private placements fall under Regulation D, usually, which stipulates the rules by which investors can be sought and placed into privately arranged contracts for equity investments. Private placements may be for non-public companies, or it may be a private offering of a publicly traded company. Regulation D stipulates the guidelines by which investors can engage in private investment without many reporting requirements. Continue reading...
A company might use this maneuver in order to keep their debt to equity levels in check. The most frequently used types of off-balance-sheet-financing are joint ventures, research and development partnerships, and operating leases. Continue reading...
Home equity loans give a homeowner the ability to borrow a lump sum against their home equity. Homeowners have the ability to use their home equity as collateral on a lump-sum loan from a lending institution. This may be done on a paid-off home or on one with an outstanding first mortgage. People sometimes use these to pay for large expenses such as their children’ s college, or as a debt consolidation tool. When used for debt consolidation, a homeowner will take out a large loan against the equity they have in their home and use it to pay off debts to credit card companies and other creditors. Continue reading...
Mortgage Equity Withdrawals (MEWs) may effectively be a withdrawal when viewed in a balance sheet, but they are actually loans that use the equity in a home as the collateral. These are also known as home equity loans. A full liquidation of equity through such a loan is a reverse mortgage. When a homeowner has paid off their home, they have a lot of equity and collateral to work with if they would like to get some liquidity (money) out of a hard asset. Continue reading...
Fully Diluted Shares are a calculation used to show how much the existing shares of common stock could potentially be diluted if all the convertible securities and employee stock options, were exercised. Fully Diluted Shares is a calculation used to show the potential number of shares that could hypothetically be called into existence instantaneously by the holders of convertible securities, warrants, employee stock options and so forth. Continue reading...