In everyday use, we often treat the words equity, shares, and stocks as the same. Saying equity shares, equity stock, or just equity is fine in casual talk. But in reality, there’s a small difference. Stocks and shares are the same thing and can be used interchangeably. Equity, however, is a broader concept. Shares and stocks come from equity, which is the main source of risk capital for a company.
Here we look at the types of equity shares and also at the equity and share difference from a conceptual perspective.
Equity Vs Stocks – Here is the Subtle Difference
Aspect | Equity | Stocks |
Meaning | Equity is the overall value that belongs to shareholders. It includes share capital, profits kept back in the business (reserves), and any premium collected when shares are issued. | Stocks are the equity shares that are listed and traded on stock exchanges. |
What it Covers | It reflects the ownership of shareholders in the company, giving them a claim on the company’s capital, retained earnings, and premiums. | It reflects only that part of equity which is issued to the public and made available for trading in the market. |
Where it Exists | Present in all companies limited by shares whether private, public, listed, or unlisted. | Comes into existence only when shares are listed and start trading on a recognized exchange. |
Valuation | Equity is often looked at as the net worth of a company (assets minus liabilities). | A stock has a face value and a market value, with the market value depending on how the company’s equity and reserves are valued by investors. |
Tradability | Equity as a whole cannot be directly traded. | Stocks can be bought and sold freely on stock exchanges at current market prices. |
Role of Promoters | Promoters contribute equity to start and grow the business, which gives them ownership rights. | Only a portion of this equity is issued as stocks to the public, while promoters usually retain the rest. |
In Simple Words | Equity is the total capital and ownership value of a company. | Stocks are the tradable slices of that equity offered to the public. |
Table of Contents
Equity VS Stock - From a Practical Perspective
Aspect | Equity | Stock |
Definition in Balance Sheet | Equity is made up of share capital, share premium, and free reserves. It also represents the net assets of the company. | Stock reflects the tradable part of equity available in the market. |
Valuation Question | The value of equity shown in the balance sheet is called the book value of equity. | The best measure of stock value is market capitalization (number of shares × market price). |
Example | If a company has 1 crore shares and the market price is ₹180, then total equity value in terms of stock is ₹180 crore. | Market cap reflects this same value, i.e., ₹180 crore. |
Business Value (M&A) | The market value of equity in M&A is not just assets, but also future cash flows, brands, copyrights, patents, and other intangibles. | Market price of stock usually tries to capture this business value, making it a close approximation. |
Comparison | Balance sheet shows the book value of equity. | Stock market shows the market value of the stock. |
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What is the difference between stock and equity?
Equity is the total ownership value a shareholder has in a company, including shares, reserves, and retained earnings. Stock, on the other hand, is the part of that equity which is broken into tradable units (shares) listed on the stock exchange.
Is equity the same as stock?
They’re closely linked but not identical. Stock is a way of holding equity. When you buy stocks, you’re essentially buying a slice of the company’s equity.
How are stock and equity related in a company?
A company’s equity is divided into shares, and those shares are issued as stocks to investors. Stocks are simply the tradable form of equity.
Why do people use stock and equity interchangeably?
In everyday investing, most people participate in equity through buying and selling stocks. That’s why the terms are often mixed up, even though equity has a wider meaning.
What are examples of equity and stock?
Equity: Share capital, reserves, and retained earnings in a company’s balance sheet.
Stock: Shares of listed companies like Reliance Industries, Infosys, or Tata Steel that you can trade on NSE or BSE.
