Explain about the equity claims in the financial security, Financial Management

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Explain about the equity claims in the financial security.

Equity classifies claims to shares into the net income and assets of a firm, and they do not contain a maturity date. But into terms of economic rights, equity claims be different from debt instruments for several purposes.

a. First, firms are not contractually obliged to create periodic payments to equity holders: there payment of dividends is a discretionary conclusion of the firm.

b. Second, firms should pay all their debt holders before they create any payment to equity holders: thus equity holders are residual claimants.


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