Equity Basics

The investor interested in equity securities should first have a firm understanding of what equity is. Equity can be defined as ownership of, or investment in, property. Property may include such things as art, race horses, computer chips, lumber, automobiles or just about anything to which legal ownership may be demonstrated.

There are three basic types of equity: common shares, preferred shares and warrants.

Equity is viewed by the market as an ownership "share" in the revenue stream of a corporation's income once all prior obligations and debts have been satisfied. The "share" price is the relative value given to the corporations earning potential based on a number of factors. These include general economic conditions, both in the industry and in the overall economy, earnings projection, projected corporate growth, corporate stage of development, and financial ratio analysis. The overall analysis of a firm's future earning potential must be done through both fundamental and technical analysis, including charting and other indicators.

Generally, the structure of equity is that a "share" of the corporation represents the current market value of the firm, secondary to this is the potential for dividend income. There are various classes of equity for the individual investor to consider. The primary three groups into which equity may be subdivided are common stock, preferred shares, and warrants.

Related Articles

Common Stock

Preferred Shares

Warrants

Corporate Development

Financial Ratio Analysis

Fundamental Analysis

Technical Analysis

Charting and Other Indicators

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