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Equity investments

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, as the value of the stock rises. 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 under priced,
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.

Accounting
In financial accounting, owner's equity consists of the net assets of an entity. Net
assets is the difference between the total assets of the entity and all its liabilities.[2]
Equity appear on the balance sheet / statement of financial position, one of the four
primary financial statements.
The assets of an entity includes both tangible and intangible items, such as brand
names and reputation or goodwill. The types of accounts and their description that
comprise the owner's equity depend on the nature of the entity and may include the
following:
Share capital
Preferred stock
Capital surplus
Retained earnings
Treasury stock

Stock options
Reserve

Book value
The book value of equity will change in the case of the following events:
Changes in the firm's assets relative to its 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, it is increasing its retained
earnings, therefore its shareholders' equity.
Depreciation - Equity will decrease, for example, when
machinery depreciates, which is registered as a decline in
the value of the asset, and on the liabilities side of the firm's
balance sheet as a decrease in shareholders' equity.
Issue of new equity in which the firm obtains new capital
increases the total shareholders' equity.
Share repurchases, in which a firm gives back money to its
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, as both
consist of the firm giving money back to investors. Rather
than giving money to all shareholders immediately in the
form of a dividend payment, a share repurchase reduces the
number of shares (increases the size of each share) in future
income and distributions.
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.

equity investment Definition


Money that is invested in a firm by its owner(s) or holder(s) of
common stock (ordinary shares) but which is not returned in the
normal course of the business. Investors recover it only when they
sell their shareholdings to other investors, or when the assets of
the firm are liquidated and proceeds distributed among them
after satisfying the firm's obligations. Also called equity
contribution.

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