ESSENTIAL FINANCE TERM

Asset, liabilities, equity, mutual fund, derivatives, capital market  - for anyone who is not from a Finance background, financial jargon can be very intimidating and alienating. Any market participant attempting to research listed shares, and make investments, needs to understand the concepts behind these technical terms. Let’s take a look:
 

ASSET and LIABILITIES- Assets and liabilities are the building blocks of accounting. All items that you or your business own can be divided into two groups - those that benefit you, are ASSETS and those that burden you, are LIABILITIES. 
 

Items like cash, real estate, jewelry are common examples of assets. However, did you know that the machines in your factory(property plant & equipment), the money you are due to receive from your customers (accounts receivable), and even brand value of your company are assets ? Anything that generates income, provides benefit and is of value is an ASSET.  

Items like loans, credit notes, accounts payable are common examples of liabilities. Tax payable to government, wages payable to employees, credit card bills, unearned revenue are also liabilities. Anything that is owed by you or your company to outsiders, can be used to purchase other assets, and is an expense is a LIABILITY.  

EQUITY- Mathematically, Equity is the difference between Assets and Liabilities. In a company, Equity can be viewed as the amount of money the shareholders of the company will receive, if all the liabilities are settled and all the assets are sold. Shareholders Equity itself is composed of (1) contributed capital - the initial money the shareholder paid for ownership of the company - and (2) retained earnings – the profit made by the company. Equity is also used loosely as a generic term for ownership of assets, for example one may say, “I have equity in Reliance” or related to stocks of a company, for example “Equity market, Equity trading, Equity financing etc.” 

STOCK: Stock is a term used very widely - stock market, stock index, common stock etc. Simply put, a stock is a percentage of a company. Owning a stock of a company means one owns a percentage of said company. For example, if we say Raju is buying stock in Reliance, it means that he is giving Reliance money and in exchange he becomes a fractional owner of Reliance. Depending on what kind of stock one owns, one becomes eligible to vote for a company’s decisions, receive dividends i.e share of profits of the company, and issue claims on the company’s assets. Stock and share essentially mean the same thing and are often used interchangeably.