Equity vs Shares: Definitions, Formulas, Context

📖 DEFINITIONS

✦ EQUITY

This is the value shareholders own in a company; It’s calculated by subtracting liabilities from total assets; Equity shows the portion of the company owned by shareholders;

→ Also called "shareholders' equity," it shows what’s left after debts are paid.

✦ SHARES

They are units of ownership in a company; They represent a fraction of the company's equity;

→ Shares are traded in markets, and their value changes based on performance and market conditions.

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🔢 FORMULAS

EQUITY = Total Assets – Total Liabilities

Value of Shares (Basic Formula) = Total Company Equity / Total Number of Shares Outstanding

Value of Shares (Market Price) = Market Price per Share × Number of Shares Owned

Value of Shares (Earnings-Based) = Price to Earnings (P/E) Ratio × Earnings Per Share (EPS)

Value of Shares (Dividend Discount Model) = Dividend per Share / (Discount Rate – Dividend Growth Rate)

Value of Shares (Net Asset Value) = (Total Assets – Total Liabilities) / Total Number of Shares Outstanding

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⚙️ CONTEXT

✦ EQUITY

→ Equity appears in the "Shareholders' Equity" section of the balance sheet; It shows the value owners hold after paying off liabilities;

→ Equity grows through profits, investments, or asset value increase.

✦ SHARES

→ Companies issue shares to raise capital; Each share equals part of the company’s equity;

→ Shares give owners rights to profits (dividends) and sometimes voting power.

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📊 MORE

✦ EQUITY

→ Common Equity: Ownership for regular shareholders; They have voting rights and may get dividends, but are last in asset claims if the company fails;

→ Preferred Equity: Owners get fixed dividends and priority over common shareholders, but usually lack voting rights.

✦ SHARES

→ Common Shares: Most common type of shares with voting rights and potential dividends;

→ Preferred Shares: Fixed dividends and priority over common shares, but usually no voting rights.

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💡 SUMMARY

✦ EQUITY → The ownership stake shareholders have in a company after liabilities are deducted;

✦ SHARES → Units of company ownership that represent a part of the equity; Shares can be common or preferred, each offering different benefits;

✦ Equity shows total shareholder value, while shares represent individual units of that ownership.

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