Difference Between Stock vs Equities
Stocks vs Equities are often used interchangeably as there is a very thin line of difference between Stocks vs Equities. In the stock market context, stocks are equity shares of the company which are traded in the market. However, equity in the context of the corporate world means ownership. When equity shares of the company are listed on stock exchanges (like BSE, NSE) so as to enable trade of ownership of the company, it’s then that equity is termed as stocks.
By definition, equity means the value of a business after all the liabilities are paid off. It is also termed of a net worth of the entity. Equity can be calculated from the Balance Sheet of an entity by using either of the following formulae:
Equity = Total Assets – Outside Liabilities,
Where outside liabilities includes all long term and short term debts
Equity = Equity Share Capital +Reserve & Surplus
By definition, stock means the value of capital raised by a company by going public i.e. by listing shares of the company on the stock exchange to raise money from the public in return of a share in company’s ownership. Hence, in simple words, that portion or share of ownership (or equity) which is given to the general public in return of money and it’s been allowed to trade on stock exchanges is called as stock.
The price of a stock at the time of issue is derived through a valuation exercise which generally results in charging a premium over the face value of each stock
There are two types of stocks: common stock and preferred stock. In general parlance, they are called equity shares and preference shares. Both the stocks provide ownership to the holder of these stocks but with a difference. In preferred stocks, as the name suggests some preference is given to the holder of these stocks like they are generally paid a fixed dividend over and above the common stockholders provided the company has made enough profits but they do not have any voting rights i.e. they cannot participate in decision making of the company. They are also given preference while returning back money in case the company is liquidated.
At the same time, common stockholders are the ones who take the maximum risk, as they are paid off at the end, but they have the privilege of voting rights i.e. they participate in the decision making of the company. Also, they have right over the entire residual profits of the company.
Head to Head Comparison between Stock vs Equities (Infographics)
Below is the top 7 difference between Stock vs Equities :
Key Differences between Stock vs Equities
Both Stock vs Equities are popular choices in the market; let us discuss some of the major Difference Between Stock vs Equities :
Stocks vs Equities are one and the same thing to a great extent. The difference between the two occurs due to an event called listing of shares in which a part of equity (ownership of the company) is allotted to the general public to raise capital. Post listing, stocks can be traded on stock exchanges i.e. could be bought and sold among public based on return expectation from the company. Hence, the word stock market was derived, which is a place where stocks are purchased and sold. With sale and purchase of stocks, ownership of the company is also transferred.
Hence, in brief, equity is the amount of capital invested by a promoter of the company and in return holds the ownership of the company while stocks are equity shares issued to the general public to raise capital in return of ownership share in the company.
Stock vs Equities Comparison Table
Below is the topmost Comparison between Stock vs Equities–
|The basis Of Comparison Between Stock vs Equities||
|Trading On Stock Exchanges||Stocks are those equity shares which are traded on stock exchanges.||Equities are not traded on stock exchanges.|
|Public Participation||Stocks involve general public participation.||Equities does not involve general public participation.|
|Price Fluctuations||Prices of a stock fluctuate on a daily basis based on demand and supply of the stock.||Price of Equity does not fluctuate as they are not traded and hence does not attract any demand or supply.|
|Value||No. of Stock multiplied by Price of stock gives the market valuation of the company.||No. of equity multiplied by the face of a value of equity gives book value of the company.|
|Disclosure in the Balance sheet||Value of Stocks is not disclosed in the Balance Sheet of a company.||Value of Equity is disclosed in the Balance Sheet of the Company.|
|At the time of acquisition or Merger or Acquisition||Value of Stock is considered while Acquisition or Merger & Amalgamation to determine the valuation of a company.||Value of Equity is not considered while Acquisition or Merger & Amalgamation to determine the valuation of a company.|
|Listing on Stock exchanges||For Equity share to be termed as stock, equity needs to listed on at least one of the stock exchange compulsorily.||Equity need not be necessarily listed on stock exchanges.|
Stock vs Equities – Final Thoughts
A difference in stock vs Equities is only because of the listing of shares in which equity shares of the company are issued to the general public through stock exchanges. The primary reason for converting equities into stocks is the limited availability of funds in the hands of a promoter of the company. Also, since the issue of stocks involves the general public, the entire process of issue and trading is highly regulated compared to in case of equities. An apex body i.e. SEBI has been established to monitor stocks and safeguard the interest of the general public.
Hence to summarize, it can be said that all stocks are equities, but all equities are not necessarily stocks.
This has been a guide to the top difference between Stock vs Equities. Here we also discuss the Stock vs Equities key differences with infographics, and comparison table. You may also have a look at the following articles to learn more