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The AMA Handbook of Financial Risk Management by John J. HAMPTON

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Chapter12Valuation of Common Stock

A major portion of the assets of corporations is invested in the equity securities of other corporations. An equity security is a legal and financial instrument that represents ownership in a firm. The ownership rights may be known in advance and are protected under various laws and legal precedents.

A corporation is a legal entity that is created under the law and is empowered to own assets, to incur liabilities, and to engage in business operations. A major advantage of the corporate form is the ease of transferring ownership. This is done through the sale of common stock.

In this chapter, we will examine the ownership of common stock. We will begin with the nature of financial securities and markets. Then, ...

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