Equity and Equity Based Financial Assets

Topics: Asset, Stock, Balance sheet Pages: 1 (299 words) Published: March 4, 2012
Equity and equity based financial assets
What is equity?
Equity is ownership interest in a corporation in the form of common stock or preferred stock. It is also total assets minus total liabilities; here also called shareholder's equity or net worth or book value. In real estate: it is the difference between what a property is worth and what the owner owes against that property (i.e. the difference between the house value and the remaining mortgage or loan payments on a house). What is a financial instrument?

A financial instrument is a security, or a document, that exists on paper or in cyberspace that has monetary value. Unlike hard assets, such as real estate, computers and cars, financial instruments are usually easily transferable or liquid, meaning you can buy and sell them quickly at the price the market is willing to pay for them at a given time. There are three basic types of financial instruments:

* Equity-based instruments, which are company stock, and represents equity ownership in a company. * Debt-based instruments, such as bonds and government treasuries, which represent a financial liability to their issuer. * The third category of financial instruments is currency pairs that trade on the foreign exchange markets. Equity-Based financial instruments

There are two basic types of equity-based financial instruments -- common and preferred stock. Common stock represents a single unit of ownership in the company that issues it. Preferred stock is sometimes referred to as a debt/equity, because it represents a unit of equity ownership in the company and it comes with guaranteed dividend payments, representing a debt liability to the company that issues it. Note: Equity based (reflecting ownership of the issuing entity); and  Debt based (reflecting a loan the investor has made to the issuing entity).
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