What is Stock, Share, Equity and Debt?
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What you will learn in this lesson.
What differentiates stock and equity
What it means to own stock
The risk of issuing and owning stock
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| Stock of a company |
Businesses need to spend money to make money. Assets can generate revenue and expenses, but how do companies purchase those assets in the first place?
The answer is debt and equity.
We will discuss debt later in this post. For now, just know that debt funding means borrowing money and paying it back with interest.
Equity is money that is supplied by a company's owners plus retained earnings. On the balance sheet, the money supplied by owners is recorded as paid-in capital.
Paid-in capital is what investors pay in exchange for an ownership stake in a company. Investors might be a single owner, a few partners, venture capital firms, individual investors, or the general public.
An equity investor's ownership stake in a company is quantified by the number of shares the own. Owning shares in a company is also called owning a stock.
Usually, we think of the stock market when we hear the terms stock and share. However, most companies are private and their stocks are not traded on the open market.
As part-owners, stockholders have a claim on a company's assets and earnings.
The claim on assets doesn't mean stockholders can help themselves to inventory. Nor dies the claim on earnings mean stockholders receive a salary.
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