EQUITY

What Does Equity Mean?

  1. A stock or any other security representing ownership. 
  2. On a company's balance sheet, the amount of the funds contributed by the owners 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. 
  6. 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 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.
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