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Meaning / Definition of

Capital Net Worth

Categories: Accounting,

total assets minus total liabilities of an individual or company. For a public company, the excess of assets over liabilities consist of retained earnings, common stock and additional paid-in surplus; here also called owner's equity or shareholders' equity or net assets. For an individual, the excess of assets over liabilities is most likely to come from savings and any additional contributions to income that they have received. Some economists say net worth is not very useful, since financial statements value most assets and liabilities at historical cost, which is usually not a good indicator of true value. also called capital net worth.

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Definition / Meaning of

Convertible Hedge

Categories: Strategies,

When you use a convertible hedge, you buy a convertible bond, which you can exchange under certain circumstances for shares of the company's common stock. At the same time, you sell short the common stock of the same company. As in any hedge, your goal is to make more money on one of the transactions than you lose on the other. For example, if the price of the stock falls, you're in a position to make money on the short sale while at the same time knowing that the convertible bond will continue to be at least as valuable as other bonds the company has issued. On the other hand, if the stock gains value, you hope to be able to realize more profit from either selling the convertible or exchanging it for shares you can sell than it costs you to have borrowed and repaid the shares you sold short.There are no guarantees this strategy or any other hedging strategy will work, especially for an individual investor who faces the challenge of identifying an appropriate security to hedge and the appropriate time to act.

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