Common equity refers to the total amount of investments made by common equity investors in a company, including the total value of all shares of common stock, retained earnings, and additional paid-in capital. Common equity is important for several reasons, including:

• Ownership: Common equity represents a residual ownership stake in a company, giving shareholders the right to claim any other corporate assets after all other stakeholders have been paid.

• Voting rights: Common equity investors can vote for or against the companys directors and corporate policies.

• Returns: Common equity can offer attractive returns over the long term, but it also comes with risks. If a company has to liquidate its assets, common stockholders are at the back of the line, getting paid only after bondholders, preferred shareholders, and other creditors have gotten their share.

• Regulations: Regulators worldwide require banks to hold a certain amount of their investments in common equity to keep them from becoming over-leveraged.

Common equity should not be confused with preferred equity, which is a special kind of capital that has characteristics of both equity and debt. The value of common equity is reported in the stockholders equity section of a companys balance sheet.