Stock Market InvestmentStock Market Investment

Introduction

Session 1A

Session 1 A: Introduction to Equities

What are shares and why do companies issue them?

Where do these shares trade? What makes the price of these shares go up

and down? Where do I find investment information?

The Company

Discovery Café

cyber café

The CompanyThe Company

The Company Founders divide the company into shares based on their initial contribution.

Elisabeth OlthetenChairman of the Board

The CompanyThe Company

As the Company grows the need for financing extends beyond the resources of the original partners.

Elisabeth OlthetenChairman of the Board

Shares Shares

Lets divide the company into 3,000 shares Lets keep 50% in the hands of the

founders…… and sell the remaining 1,500 shares at $100 per share

This brings $150,000 of additional capital into the company.

Shares Shares

MAIN STREET Shares for Sale

Common SharesCommon Shares

The new partners are shareholders.

Shareholders have equity,- partial ownership,- of the company.

Common shares represent ownership of the company.

Discovery Cafe Discovery Cafe

This is to certify that

Elisabeth Oltheten

is the record holder of 3,000

shares of The

Discovery Cafe Company

signed and authorizedJohn Q. DorsetTransfer Agent

Elisabeth OlthetenChairman of the Board

The CompanyThe Company

Elisabeth OlthetenChairman of the Board

Market ValueMarket Value

The Market Value of a share is the most recent price at which the share was bought and sold. If someone bought shares of Discovery Cafe for $100 per

share , then your shares are probably worth close to $100 per share too..

The Capitalization is the market value of the company Discovery Cafe has 3,000 shares outstanding; at a market

value of $100 per share, the company is capitalized at $300,000.

Price MovementsPrice Movements

• The Mayor has coffee and a croisssant at the Discovery Café and gets food poisoning.

40

50

60

7080

90

100

110

120

The Price goes down

Market Value Market Value

If you purchased 100 shares of Discovery Cafe at the initial price of $100 per share then at $50 per share your $10,000 investment is now worth $5,000.

100 * $100 = $10,000

100 * $50 = $5,000

The company’s market capitalization is now

3000 * $50 = $150,000

Price MovementsPrice Movements

• The Governor holds a Press Conference at the Discovery Café and says it’s his favorite place.

405060708090100110120130

The Price goes up

Market Value Market Value

If you purchased 100 shares of Discovery Cafe at the initial price of $100 per share then at $120 per share your $10,000 investment is now worth $12,000.

100 * $100 = $10,000

100 * $120 = $12,000

The company’s market capitalization is now

3000 * $120 = $360,000

Price MovementsPrice Movements

• The Price of the stock goes up and down based on the perception of the underlying value of the company.

Going Public Going Public

As Discovery Cafe becomes more successful we can open branches across the country. To finance this expansion we can issue and sell more shares.

Having exhausted our supply of family and friends we now wish to sell shares to the general public.

Going Public Going Public

We decide to create and sell 100,000 Class B shares to the general public.

We must register our stock with the Securities and Exchange Commission.

We must issue a prospectus. Until the SEC approves our application we must bind

our prospectus in red. This is called the Red Herring.

Initial Public Offering Initial Public Offering

Our Investment Bank agrees to underwrite the Discovery Cafe issue.

The day before the shares are offered to the public the underwriter prices the issue. If our underwriter prices Discovery Cafe at $40 per share then our 100,000 shares generate $4 million.

The following day the underwriter sells the shares to the public.

Over the CounterOver the Counter

• Our stock will trade over the counter and be quoted as part of NASDAQ - probably under small cap issues.

• If there is enough activity in Discovery Café then our stock will be listed with the National Market Issues.

• We will be assigned a four character ticker symbol. (CAFE)

ListingListing

• If we meet the listing requirements of the American Stock Exchange (AMEX) or the New York Stock Exchange (NYSE) we can list Discovery Café on an exchange.

• Our stock will be given a one, two, or three character ticker symbol. (DC)

The EndThe End