Friday, July 10, 2009

Equity as arts and science

Equity is one of the important elasticities (or elements) in the financial statements.

Aside from equity there were other variables in financial statements, such as cash, revenue, sales, investment, current assets, liabilities, income before extra ordinary item, and working capital. On the other hand, Valuation is the art/science of determining what a security or asset is worth. So, proper equity valuation is a very important issue for a company[1] since it connotes knowing the market value or market capitalization of the company. Viewed form an individual or stockholder’s perspective, it simply means stock price.

Equity valuation therefore means valuing the stock of the corporate entity for purposes of determining worth of the company. In terms of individual share of the stock each stockholder has decisions to make on the basis of knowledge of his or stock worth or stock price. He could them decide to hold, sell or buy the stock and his or knowledge will definitely therefore increase or decrease his or her wealth from stock ownership.


[1] Ohlson, James A., and X. Zhang, 1998,

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