Equity Shares

Equity Shares (also known as 'Common Stock' or 'Ordinary Shares') are the most fundamental building block of the stock market. Think of a company as a giant pizza. An equity share is simply one slice of that pizza. When you buy an equity share, you are not just buying a piece of paper or a digital blip on a screen; you are buying a fractional ownership stake in a real, breathing business. This makes you a part-owner, a `Shareholder`, with a claim on the company's assets and, more importantly, its future profits. Unlike lenders who are promised a fixed interest payment, equity shareholders are the ultimate risk-takers and potential reward-reapers. If the business flourishes, the value of your slice can grow immensely. If it fails, your slice could become worthless. This direct link to the company's fortunes is what makes equity investing so dynamic and is the central focus of a `Value Investing` strategy.

Owning an equity share isn't just about watching its price go up or down. It comes with a bundle of rights that solidify your status as a part-owner. Understanding these rights is crucial to thinking like an investor rather than a speculator.

As a part-owner, you get a say in how the company is run. This usually means you have the right to vote on major corporate matters, such as electing the board of directors (the people who oversee the company's management) or approving a potential merger. While one person's vote may seem small, collectively, shareholders wield the ultimate power and can hold management accountable. This is the 'governance' part of ESG Investing.

Shareholders have a claim on the company's profits. When a company decides to distribute some of its earnings to its owners, it does so through `Dividends`. However, this right comes with a crucial catch: shareholders are last in line. The company must first pay all its other bills—salaries, suppliers, taxes, and interest to its lenders. What's left over is called `Residual Earnings`, and this is the pool from which shareholders are paid. This “last in line” status is why equity investing is riskier than lending, but it's also why the potential rewards are uncapped.

As an owner, you have the right to be kept informed about the company's health and performance. Publicly traded companies are required to regularly publish financial statements, including an `Annual Report` and `Quarterly Reports. These documents are a treasure trove of information for investors who are willing to do their homework.

This is one of the most brilliant features of owning equity shares. `Limited Liability` means that the maximum amount of money you can possibly lose is the amount you invested. If the company goes bankrupt and owes billions, its creditors cannot come after your personal assets like your house or your car. Your financial risk is capped, but your potential upside is theoretically unlimited.

To a true value investor, following in the footsteps of legends like `Benjamin Graham` and `Warren Buffett`, an equity share is far more than a stock ticker. It is a piece of a business. This mindset changes everything. You stop asking, “What will the stock price do tomorrow?” and start asking, “Is this a wonderful business, and can I buy my piece of it for less than it's truly worth?” The goal is to calculate the `Intrinsic Value` of the business—what it's fundamentally worth based on its assets, earnings power, and future prospects. Then, you wait patiently for the market to offer you a chance to buy a share at a significant discount to that value. This discount is the famous `Margin of Safety`, which acts as a buffer against errors in judgment and bad luck. The share price is what you pay; the business value is what you get.

While determining a company's true intrinsic value is an art, investors use several tools to get a sense of what a share might be worth.

• Earnings-Based Valuation: A common starting point is to look at a company's profit. The `Earnings Per Share (EPS)` tells you how much profit the company generated for each individual share. By comparing the share price to its EPS, you get the famous `Price-to-Earnings (P/E) Ratio`, which gives you a rough idea of how expensive the stock is relative to its earnings.
• Asset-Based Valuation: This method looks at a company's `Balance Sheet`. You take all the company's assets (cash, factories, inventory) and subtract all its liabilities (debt, bills to be paid). What's left is the `Shareholder Equity`, also known as `Book Value`. Comparing the market price to the book value gives you the Price-to-Book (P/B) Ratio, a metric favored by deep value investors.

Equity shares are created and sold by companies to raise money to fund their operations and growth.

• The IPO: The first time a private company offers its shares to the general public is through an `Initial Public Offering (IPO)`. This is a major event where the company “goes public” and its shares begin trading on a stock exchange.
• Secondary Offerings: A company that is already public may decide to issue and sell more new shares to raise additional capital. This is known as a `Secondary Offering`. It's important for existing shareholders to be aware of these, as issuing more shares can dilute their ownership stake—meaning their slice of the pizza gets a little bit smaller.