and the stock market can be complicated for some people. However,
you don't have to know all the details about the stock market to get involved.
This week we will begin with the question: What is a stock?
Read the following article and answer the questions at the end.
ets begin by explaining why companies issues stocks. Most companies cannot make all the money they need just by selling their products. They often need extra money. To raise this extra money, corporations may borrow it or issue stocks which represent ownership in a corporation. Stocks are simply certificates showing a person owns a share of a company. Each stock share is purchased by an investor who hopes their investment will increase in value. The stocks a person buys gives them part-ownership in a company. A company is literally selling part of itself to raise money. Buying even one share of stock makes you a part-owner in that company. The more shares you buy, the more influence you have over that company's policies.
ecurities is another name for stocks. A person who owns stocks is referred to as a shareholder or stockholder. Businesses that issue stocks are called publicly held companies. Anyone can buy stock in a publicly held company. Some companies like UPS sell stock in their company but not to the public. These are referred to as privately held. Only the upper management are allowed to own stock in UPS.
orporations must decide whether to raise money by borrowing or by issuingstocks. There is a greater risk in borrowing because the company puts itself in debt to someone else (bank). If the debt cannot be repaid, bankruptcy may result. By borrowing, however, management has more control over the operations of the company. Although, when a corporation offers stock to the public, a degree of control is lost. Management becomes responsible to the ownership of those who hold the stock. Stock issues also decrease company income when dividends (a small amount paid to shareholders for each share they own) are paid out to stockholders from company profits.
ew companies are quite likely to issue stock, since they are seeking venture capital, or start-up money. These companies are less likely to pay dividends since they are growing and want to reinvest their profits back into the company.
- What two ways do companies have to raise money?
- What is a stock?
- Discuss the issues faced by a company trying to decide where to issue stocks or get a loan.
- Why are issuing stocks important to a company?
- What happens when a person owns a majority (over 50%) or stock in a company?
- Why would a company offer stocks but only privately?
- What criteria would you use before you purchased stock?
- Why do people buy stocks?