the stock market what you need to know to begin investing
Post on 27-Dec-2015
218 Views
Preview:
TRANSCRIPT
The Stock Market
What you need to know to begin investing.
How Do Companies Raise Money? Form a partnership Borrow Reinvest profits Issue bonds Sell stocks
We’ll explore selling how businesses sell stocks to raise money
What Is Stock?
Stock represents part ownership in a company
Anyone who owns stock is called a stockholder or shareholder
Companies sell stock to raise money People buy stock hoping the value
will rise and they will make a profit
Corporate Structure Businesses Owners and investors are protected
from any financial claims Financial risk would be limited to the
amount of money invested If the company fails the investors
are not personally responsible for that debt
Who Runs the Corporations? Board of Directors
They oversee all the corporation’s business
They must be elected The Board will vote to “go public”
Sell shares of stock to the public in order to raise money for company expansion
Does not run the day-to-day activities—elects a president and other officers
How Are Stocks Issued?
There are 2 steps to issuing stocks They are initially issued in the primary market After the initial sale, they are thereafter sold on
the secondary market An investment banker will be hired to
study the market and set a fair trading price The investment banker buys all the stock and
resells it to the public (underwriting)
The Secondary Market
The New York Stock Exchange (NYSE) & the American Exchange
Also includes some Regional Stock Exchanges and the Over-the-Counter Market
This the the stock exchange where stocks are bought and sold They do not own stocks They do not influence prices They only function as an auction Buyers & sellers determine prices
Getting Ready to Trade
A company must file a registration statement with the Securities and Exchange Commission This statement contains hundreds of details
about the company’s financial condition A prospectus will be issued which also contains
financial information about the business and is given to all potential investors
There will be an initial public offering (IPO)
What Is an IPO?
The company’s way of telling the world they are ready to sell stock.
The price will be fixed for the IPO After this first sale, the price will fluctuate
depending on supply and demand The company will advertise it’s IPO by
advertising in the Wall Street Journal or other financial papers
Tombstones
These ads are called “Tombstones” Some say because of
the black borders and heavy dark ink they resemble graveyard tombstones
Others say the way the words are arranged are like the format on tombstones
Stock Ownership
Even if you purchased only 1 share of stock in a company, you own part of everything the company owns
To document ownership companies issue a stock certificate to each shareholder which shows the number of shares owned by the person
Stocks may also be held by institutions
There Are Two Kinds of Stock Common
Costs less Do not get preferential treatment
Preferred Stock Costs more Preferential treatment
Common Stock
Owners share profit (if company is profitable) Gain income through dividends and
dividend increases Benefit as the stock increases in price
(capital appreciation) Do not get preferential treatment
like preferred stockholders
Preferred Stock
May be issued after common stock is issued Receive dividends before common
stockholders If company is forced to liquidate preferred
shareholders receive their investment back before common shareholders
Costs more than common stock Get a fixed dividend
Owners Have the Right to Vote Can vote for Board of Directors Annual meetings held where shareholders
vote on issues Any shareholder can make suggestions and ask
questions SEC requires an Annual Report be issued
once per year Yearly record of company’s growth Financial report card
Where Do the Profits Go?
Dividends are paid to shareholders Board decides how much An equal dividend is paid for each share Some corporations don’t pay dividends If dividends are consistently paid the
stock is known as “income stock” Income stocks provide a steady cash
payment to shareholders
Where Do the Profits Go?
Corporations reinvest the money This is called retained money Used to finance expansion and growth Reduces the amount needed to borrow
from a bank Called “internal financing” because the
money comes from inside the company
Stock Splits
Another way to reward stockholders (besides dividends)
Another reason for a stock split would be to reduce the price of the stock
Can split 2:1 or 3:1 or other amounts A stock worth $60 split 2:1 results in
two shares each worth $30
How Did the Stock Market Get Started?
We understand what stocks are and why a company would want to incorporate
How did the stock exchange come into being?
top related