Summary of Equity Securities Essay Example | Topics and Well Written Essays - 1250 words

Summary of Equity Securities - Essay ExampleEquity security cloakments that do not jump the part of the trading securities are referred as available-for-sale (AFS) securities. This are reported at the fair value with gains and losses that are unrealized and are excluded from the earnings of the company. The investments make in the equity securities are recorded at the cost that takes into account securities transaction taxes, brokerage fees and other costs that are related to the procurement of securities (Subramani 12). The investors invest in the company shares hoping to receive high return on their cash outflows. The demand of the investors in the financial markets has invariably changed with the passage of time. The companies motivate these investors by providing higher future expected returns on the assets (equities). The equity securities and its features differ in case of different types of companies. The types of companies and the features of stocks are explained hencefort h (Fabozzi 6-7). Defensive companies have the ability to withstand the scotch downturn and the future earnings are not affected. Hence, the business and financial risk is low in this case. Examples of such defensive companies are grocery arrange or public utilities, which aims at providing its customers with necessity products. The rate of return of defensive stocks does not decline when there is an overall market decline. According to the Capital plus Pricing Model (CAPM), the relevant risk of an asset has covariance with the market portfolio of risky assets. Hence, stocks with negative or low systematic risk (beta value) are considered as defensive stocks according to the theory of CAPM the stock returns are not affected by the significant changes in a bear market (Scott 102).The earnings and sales of circular companies are significantly influenced by business activities. Examples of these