Definition of equity
I was wondering why equity is reflecting ownership of the issuing entity?  That is the definition of equity in this regard. My understanding is that for a stock/equity, its issuing entity is a company/firm that sells the stock/equity, while its receiving entity is an investor that buys the stock/equity Correct. equity reflects ownership of the receiving entity i.e. investor Incorrect. Equity reflects ownership by the receiving entity of the issuing entity. That is, when you buy stock in a company (taking an equity stake in the company) you buy a piece of the company.  It would be rather odd for the company to own a piece of you when you buy their stock. The word equity always refers to the ownership of something, whether it be a company or a home. The wikipedia article is differentiating companies by how they raised money for operations. Equity companies, by their definition are those that sold an interest in the company in exchange for capital. Debt based companies, again by their definition, are those that borrow money from investors, but instead of an ownership stake they promise to pay back the money presumably with interest.
I think the most concise way to understand EV is the value of the *operating assets* of the firm. It's most generally used when using income statement or cash flow ratios that are unlevered - before applying interest expense (which if the firm is optimally financed, in theory should only impact the equity). Examples include revenue, EBIT, EBITDA, unlevered FCF, etc.  In your hypothetical scenario, you would expect the equity value of the firm to increase linearly as cash builds up. In other words, in some implausible, ceteris paribus formulation of the firm, the enterprise value should remain constant. "Oh, I understand now -- we're having an absurd, meaningless conversation about an obscure theoretical point.  When you can tell me how you can determine a ""minimum cash"" level from a public company's filings, we can continue the discussion.  Otherwise, make a simplifying assumption and move on.  I misunderstood -- I thought we were actually trying to understand the difference between enterprise value and equity value / understand the implication of an enterprise value multiple." Stock is ownership. And whether the thing you own is a good or service irrelevant. The ownership itself is all that matters. Ownership = service ??? Ownership = good ??? Maybe the problem is your trying to fit a verb into a noun-based categories? "Market cap is synonymous with equity value, which is one way of thinking of a company's ""worth.""  The alternative would be enterprise value, which is calculated as follows:  Enterprise Value = Market Value of Equity + Market Value of Debt - Cash and Equivalents - Non-Operating Assets  Enterprise value is essentially ""how much is the firm worth to ALL providers of capital."" It can be viewed as ""if I wanted to buy the *entire* company, debt and all, what would I have to pay?""" "Many thanks for thedetailed  response, appreciate it. But I am still not clear on the distinction between a public company and the equity holders. Isn't a public company = shareholders + equity holders? Or do you mean ""company"" = shareholders+equity holders + debt holders?" If you truly have > 22% equity, they have to stop it.  However, without an appraisal, how do you know if you have > 22% equity?  If you bought the house for 100k, and paid your mortgage down to 78k, but now the house is only worth 78k, you have 0% equity, not 22% equity.  Without an appraisal, you have no idea how much equity you have. Yeah, it sucks, but that's how equity is calculated: based on the current value, not the past value. Source, see if you have access to it Convertible notes are often used by angel investors who wish to fund businesses without establishing an explicit valuation of the company in which they are investing.    When an investor purchases equity in a startup, the purchase price of the equity implies a company valuation.  For example, if an investor purchases a 10 per cent ownership stake in a company, and pay $1m for that stake, this implies that the company is worth $10m. Some early stage investors may wish to avoid placing a value on the company in this way, because this in turn will affect the terms under which later-stage investors will invest in the company.  Convertible notes are structured as loans at the time the investment is made.  The outstanding balance of the loan is automatically converted to equity when a later equity investor appears, under terms that are governed by the terms set by the later-stage equity investor.  An equity investor is someone who purchases equity in a company. Example:- Suppose an angel investor invests $100,000 using a convertible note.  Later, an equity investor invests $1m and receives 10% of the company's shares.  In the simplest possible case, the initial angel investor's convertible note would convert to 1/10th of the equity investor's claim.  Depending on the exact structure of the convertible note, however, the angel investor may also receive extra shares to compensate them for the additional risk associated with being an earlier investor The worst-case scenario would be if the issuing company initially performed well, meaning that the debt would be converted into shares, and subsequently went bankrupt. The converted shares would become worthless, but the holder of the note would no longer have any recourse. Will twitter have to sell their offices and liquidate staff to close this debt? This depends on the seniority(priority) of the debt. Debt is serviced according to seniority. The higher seniority debts will be paid off first and then only the lower seniority debts be serviced. This will all be in the agreements when you enter into a transaction. When you say liquidate staff you mean sell off their assets and not sell their staff into slavery. "Not to detract from the other answers at all (which are each excellent and useful in their own right), but here's my interpretation of the ideas: Equity is the answer to the question ""Where is the value of the company coming from?""  This might include owner stakes, shareholder stock investments, or outside investments.  In the current moment, it can also be defined as ""Equity = X + Current Income - Current Expenses"" (I'll come back to X). This fits into the standard accounting model of ""Assets - Liabilities = Value (Equity)"", where Assets includes not only bank accounts, but also warehouse inventory, raw materials, etc.; Liabilities are debts, loans, shortfalls in inventory, etc.  Both are abstract categories, whereas Income and Expense are hard dollar amounts.  At the end of the year when the books balance, they should all equal out. Equity up until this point has been an abstract concept, and it's not an account in the traditional (gnucash) sense.  However, it's common practice for businesses to close the books once a year, and to consolidate outstanding balances.  When this happens, Equity ceases to be abstract and becomes a hard value: ""How much is the company worth at this moment?"", which has a definite, numeric value. When the books are opened fresh for a new business year, the Current Income and Current Expense amounts are zeroed out.  In this situation, in order for the big equation to equal out: Assets - Liabilities = X + Income - Expeneses the previous net value of the company must be accounted for.  This is where X comes in, the starting (previous year's) equity.  This allows the Assets and Liabilities to be non-zero, while the (current) Income and Expenses are both still zeroed out.  The account which represents X in gnucash is called ""Equity"", and encompasses not only initial investments, but also the net increase & decreases from previous years.  While the name would more accurately be called ""Starting Equity"", the only problem caused by the naming convention is the confusion of the concept Equity (X + Income - Expenses) with the account X, named ""Equity""." Equity can be diluted by future investors, royalties get paid on each sale, companies can continue selling things even when operating at negative profit, back royalties due can be negotiated and at least partially paid in a bankruptcy.  From the standpoint of the investor: If it doesn't look like the company will likely have commercial success with a second product, it may be wise to simply take a portion of the product that is actually selling rather than risk your capital on the company's future successes (or failures). From the standpoint of the business owner/entreprenuer, if you believe you have a second product close to the end of the development pipeline it would be wise not to give up equity in the entire enterprise simply to gain required financing to ramp up production and marketing on an existing product.  Paying a royalty may be advantageous compared to paying interest on a loan as well (royalty payments are contingent on the occurrence of a sale while interest is due regardless). "Equity could mean stock options. If that's the case if the company makes it big, you'll have the option to buy stocks cheap (which can then be sold at a huge profit) How are you going to buy those without income?  5% equity is laughable. I'd be looking for 30-40% if not better without salary.  Or even better, a salary. To elaborate, 5% is fine, and even normal for an early employee taking a mild pay cut in exchange for a chance at return. That chance of any return on the equity is only about 1/20 (94% of startups fail) There is no reason for an employee to work for no pay. An argument could be made for a cofounder, with direct control and influence in the company to work for equity only, but it would be a /lot/ more (that 30-40%), or an advisory role (5% is reasonable)  I also just noticed you mentioned ""investing"" in the startup with cash. As an angel investor, I'd still expect far more than 5%, and preferred shares at that. More like 16-20%.  Read this for more info on how equity is usually split." "The Equity balance is your Assets (stuff you own) minus your Liabilities (debts you owe to others). It represents your ""net worth"" - how much money you would have when you would pay all your debts. When you want anything to show up in Equity, you need to make use of the asset and liability sheets. As long as you only manage Income and Expenses, your equity won't change. When you want to ""save"" money so the saved up money appears as an Asset and thus affecty your Equity, book it as an expense to your Cash or Bank asset account. For more information, check Chapter 3 of the GNUCash manual." "To your first comment: yup. To your second comment, A = L + E. If E goes down, and L goes up, the net effect is 0. Then, if L goes down, and A goes up, the net effect is 0 and we are balanced once again. There is no ""rebalancing"" equity. You just have to make sure that, at the end of your journal entries, the accounting equation holds.  It's a very unintuitive concept to wrap your head around, but spend some time mapping out the flow of various journal entries. Once it clicks, you'll really understand the logic." Citing the Yahoo Finance Help page, Beta: The Beta used is Beta of Equity. Beta is the monthly price   change of a particular company relative to the monthly price change of   the S&P500. The time period for Beta is 3 years (36 months) when   available. Regarding customised time periods, I do not think so. Assuming you're in the United States, then International Equity is an equity from a different country.  These stocks or stock funds (which reside in a foreign country) are broken out seperately becuase they are typically influenced by a different set of factors than equities in the United States: foreign currency swings, regional events and politics of various countries. "Asset = Equity + (Income - Expense) + Liability Everything could be cancelled out in double entry accounting.  By your logic, if the owner contributes capital as asset, Equity is ""very similar"" to Asset.  You will end up cancelling everything, i.e. 0 = 0.  You do not understate liability by cancelling them with asset.  Say you have $10000 debtors and $10000 creditors. You do not say Net Debtors = $0 on the balance sheet.  You are challenging the fundamental concepts of accounting.  Certain accounts are contra accounts. For example, Accumulated Depreciation is Contra-Asset. Retained Loss and Unrealized Revaluation Loss is Contra-Equity."