Equity

Terminology §

• Equity. Equity is a partial ownership of an asset (mostly companies)
• Equity in a mortgage

$$\text{Equity}=\text{Net Market Value}-\text{Unpaid Balance}$$

• Equity in a company.

  • Equity index
    • $:=$ a weighted average of equities
    • e.g. S&P 500, Dow Jones Ind. Avg., Nasdaq, Rusells 2000 ← different indices with different weights
    • ownership rights (like voting in decisions) are relinquished
  • Private Equity Firms
  • Earnings Season
    • Firms post earnings every quarter. Earnings $\equiv$ Income $\equiv$ Profit.

• You buy an equity because you expect

  1. It pays regular dividends
  2. You expect its price to go up ← S&P has always beaten any other asset class

• Dividend Discount Model. Pricing an equity.

• Principal Shareholder: the majority shareholder who controls the firms fully

• Minority Interest (=non-controlling interest):= The interests of a non-controlling stockholder.

  • This interest is not interest rate. It’s about having a stake.

• Fully Dilluted Shares:= total sum of outstanding shares.

• Common Stock: may not pay dividend; but if it does, you expect it to grow

• Preferred Stock: No voting rights, but during bankruptcy you can liquidate first.

• Comparable Company (Comps) Analysis. Which equity to buy?

• Dividend Yield

$$\text{Dividend Yield}=\frac{\text{Dividend per share}}{\text{Share price}}$$