here's how the stock market works:
there's a type of company called a PUBLICLY TRADED COMPANY.
this type of company's ownership is divided into what is known as stocks. a stock is an intangible asset to you, but to the company it is a part of the EQUITY section of the balance sheet.
when you buy a stock, you are buying into the ownership of a company, the more stock you own, the more you control of the company.
the stocks are divided into two categories: preferred and common.
preferred stocks have a guaranteed amount of dividends, and in case the company becomes insolvent and tries to liquidate, they get their share of the spoils first. (in general).
common stock has no guaranteed dividend, and only share in the spoils after the preferred stockowners have gotten their money back.
companies choose to "go public", when they have an operation they believe can grow and expand enough to attract investors, without having to have a personal relationship with them. they raise capital by going public. we call "raising capital" to raise money.
stocks have a "par" value. this is the face value of the stock. normally 1 dollar, or so. some stocks are no par stock, which have no value. When they are sold at more than their par value, the company raises capital. the accounting to achieve this says that you raise the balance of cash, raise the balance of the Common stock account, and raise the value of PAID IN CAPITAL IN EXCESS OF PAR VALUE. that excess of par value, is the extra capital they raise by selling stock.
the value of stock goes up and down depending on how the company performs. this is because a company that performs well, pay more in dividends. DIVIDENDS are a share of net income that goes back to the investors that bought those stocks. see, cuz the company can't expect people to buy the stock, to receive nothing in return. the return they receive is the dividends they give out.
the dividends are normally a cash payment, but can also be additional stock, or other forms of payment.
there's people that buy on speculation. which is to buy low, sell high. that's what happens in the stock exchanges in the U.S. where all the guys are running around with papers, and phones, and screaming.
if you choose to buy stocks, look up and memorize these three terms:
Return on Investment
Return on Assets
Return on Equity
Quick Ratio
^^ these numbers are calculated using the Financial statements of corporations. corporations are required to give financials at least once a year, to let investors know about the company's performance. normally they hand out Quarterly financials too, if they are publicly traded (quaterly's are not as accurate as others, because they are "thrown together", i've taken corporate accounting, and calculating Minority interest (another part of Equity) when dealing with parent-subsidiary relationships is extremely time consuming, and complicated).
they also give out memo's, letters to shareholders, etc. that let them know about the future plans the corporation has. nothing beats the financial statements though.
hope this cleared it up....
there's a type of company called a PUBLICLY TRADED COMPANY.
this type of company's ownership is divided into what is known as stocks. a stock is an intangible asset to you, but to the company it is a part of the EQUITY section of the balance sheet.
when you buy a stock, you are buying into the ownership of a company, the more stock you own, the more you control of the company.
the stocks are divided into two categories: preferred and common.
preferred stocks have a guaranteed amount of dividends, and in case the company becomes insolvent and tries to liquidate, they get their share of the spoils first. (in general).
common stock has no guaranteed dividend, and only share in the spoils after the preferred stockowners have gotten their money back.
companies choose to "go public", when they have an operation they believe can grow and expand enough to attract investors, without having to have a personal relationship with them. they raise capital by going public. we call "raising capital" to raise money.
stocks have a "par" value. this is the face value of the stock. normally 1 dollar, or so. some stocks are no par stock, which have no value. When they are sold at more than their par value, the company raises capital. the accounting to achieve this says that you raise the balance of cash, raise the balance of the Common stock account, and raise the value of PAID IN CAPITAL IN EXCESS OF PAR VALUE. that excess of par value, is the extra capital they raise by selling stock.
the value of stock goes up and down depending on how the company performs. this is because a company that performs well, pay more in dividends. DIVIDENDS are a share of net income that goes back to the investors that bought those stocks. see, cuz the company can't expect people to buy the stock, to receive nothing in return. the return they receive is the dividends they give out.
the dividends are normally a cash payment, but can also be additional stock, or other forms of payment.
there's people that buy on speculation. which is to buy low, sell high. that's what happens in the stock exchanges in the U.S. where all the guys are running around with papers, and phones, and screaming.
if you choose to buy stocks, look up and memorize these three terms:
Return on Investment
Return on Assets
Return on Equity
Quick Ratio
^^ these numbers are calculated using the Financial statements of corporations. corporations are required to give financials at least once a year, to let investors know about the company's performance. normally they hand out Quarterly financials too, if they are publicly traded (quaterly's are not as accurate as others, because they are "thrown together", i've taken corporate accounting, and calculating Minority interest (another part of Equity) when dealing with parent-subsidiary relationships is extremely time consuming, and complicated).
they also give out memo's, letters to shareholders, etc. that let them know about the future plans the corporation has. nothing beats the financial statements though.
hope this cleared it up....
