With stock investing, one of the valuation ratios used is the price to book ratio. It identifies the spread between book value and market value for a share of stock. As the spread increases the ratio increases. A good example is Coca-Cola. Its price to book ratio hovers in the 11 range. Coca-Cola is a Dow Jones Industrial top 30 stock.
Equity is a broad based term used in business. It has several definitions. The primary definition is associated with the equity section of the balance sheet. It refers to the financial position of the owners of a business.
Just as manufacturing uses controls to ensure quality of product, controls are used in accounting to generate accurate information, maintain security over assets and comply with Generally Accepted Accounting Standards. The company implements various controls to assure accurate and timely information.
Those corporations doing well and flush with cash sometimes buy back stock from their investors. Once purchased back by the company the stock is called treasury stock. However, in small business, buying back stock can significantly alter the entire corporate control ownership and impact the long term outcome and direction of the company.
Those small publicly traded businesses with share prices of less than $5 and capitalization of less than $50 million are referred to as penny stocks. Penny stocks may trade on any of the major stock exchanges. For investors the risk is generally greater and the chance of instant success is remote at best. To counter this relatively volatile environment an investor can participate for a relatively low investment dollar amount.
To fully grasp the concept of accounting a bookkeeper must accept that there are six (6) different types of accounts. All the reports, ledgers, journals and entries revolve around these six types of accounts. Bookkeeping is the function of entering data based on the economic transaction into the respective type of account.