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Equity Options
Turnpike
Posted: Thursday, September 27, 2018 4:23:48 AM
Rank: Newbie

Joined: 2/16/2018
Posts: 31
Neurons: 1,378
Hi all,
Could you paraphrase the part in red, please?
What is my "equity" in the property?
What is "equity interest"?
What is shareholder's equity?

And what does that part mean in simple terms, please?

Earnings multiple
For a publicly traded company, the current share price multiplied by the
number of outstanding shares indicates the market value of the company’s
equity. Add to this the value of the company’s debt, and you have the total
value of the enterprise. In other words, the total value of the company is
the equity of the owners plus any outstanding debt. Why add the debt?
Consider your own home. When you go to sell your house, you don’t set
the price at the level of your equity in the property. Rather, its value is the
total of the outstanding debt and your equity interest. Similarly, the value
of a company is the shareholders’ equity plus the liabilities.
FounDit
Posted: Thursday, September 27, 2018 11:48:22 AM

Rank: Advanced Member

Joined: 9/19/2011
Posts: 9,898
Neurons: 51,944
Turnpike wrote:
Hi all,
Could you paraphrase the part in red, please?
What is my "equity" in the property?
What is "equity interest"?
What is shareholder's equity?

And what does that part mean in simple terms, please?

You can think of equity as cash value. In your first sentence, if a company has sold one million shares of stock, and the value of each share is one dollar, then they have a market value of one million dollars.

However, you also have to take into account what they owe. This is their debt. When you add their debts, the million dollars of equity might go up to one and one half of a million. So to buy the company, someone would have to be able to cover all that value.

Earnings multiple
For a publicly traded company, the current share price multiplied by the
number of outstanding shares indicates the market value of the company’s
equity. Add to this the value of the company’s debt, and you have the total
value of the enterprise. In other words, the total value of the company is
the equity of the owners plus any outstanding debt. Why add the debt?
Consider your own home. When you go to sell your house, you don’t set
the price at the level of your equity in the property. Rather, its value is the
total of the outstanding debt and your equity interest. Similarly, the value
of a company is the shareholders’ equity plus the liabilities.

The same is true here for a home. When you sell a home, you have already paid something on the debt. That is your equity, but you still own money for the balance. So to sell the home, you have to add those together to get a total value for the home.

(Edit: this does not take into account any increase in value for homes in the neighborhood, or a business. This is just a simple example of equity)



We should look to the past to learn from it, not destroy our future because of it — FounDit
Turnpike
Posted: Friday, September 28, 2018 2:29:27 AM
Rank: Newbie

Joined: 2/16/2018
Posts: 31
Neurons: 1,378
Thank you, Thar!
Romany
Posted: Friday, September 28, 2018 4:43:41 AM
Rank: Advanced Member

Joined: 6/14/2009
Posts: 14,761
Neurons: 46,147
Location: Brighton, England, United Kingdom
Yes, thanks Foundit,

I often hear this word in American productions and have often wondered exactly what it meant. But as am unlikely ever to be in a situation where I'd need to know I always mean to look it up but then forget until the next time I come across it.Drool
thar
Posted: Friday, September 28, 2018 5:38:34 AM

Rank: Advanced Member

Joined: 7/8/2010
Posts: 18,193
Neurons: 73,885
Turnpike wrote:
Thank you, Thar!


Hey, weren't me. The closest will ever get to owning a house is monopoly. Whistle
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