Now that we have a good understanding of equity, let's dive a little deeper into the relevant terminology.

In practice, equity, stock and shares are often used almost interchangeably. Here, for example, is a headline from a financial news outlet. Equity markets rallied yesterday with particularly strong performance in technology stocks as investors snapped up shares in companies like and so on.

In reality, however, there are subtle distinctions between these terms.

Equity is the broadest term and generally refers to ownership in a company. When you have equity in a company, you have a stake in that company.

Stock specifically refers to the ownership units or certificates that represent ownership. In a corporation, it can be thought of as the entire pool of ownership in a company. So it's a subset of equity and is often used when discussing ownership in publicly traded companies.

Shares, however, are the individual units or pieces that make up the stock of a company. They represent specific portions of the company's ownership. When people buy or sell shares, they are dealing with the individual units of ownership. For instance, if a company had issued 1,000 shares in total, then each share represents a 1 1,000th ownership stake in that company, and all 1,000 shares together are the total stock of that company.

With that, we can now shed some light on another term that is often used when talking about equity in a balance sheet context. The book value per share, the book value of a share is calculated by dividing the total equity attributable to the shareholders by the number of outstanding shares. So it simply gives us an idea how much the holder of one share should receive. If the company was unwound in an oddly fashion i.e., all the assets were sold and turned into cash, then all of the debt was repaid. The remaining cash equally distributed across the outstanding number of shares would be this figure.

The simplified formula to calculate book value per share, therefore looks as follows. Book value per share equals total shareholders equity divided by total outstanding shares. So if we go back to our example company with 40 million of equity, and assume that at the end of year zero there was a total number of 1 million shares outstanding. This gives us the book value per share of $40.