Stocks Trading and Buying Guide
Stocks are all the stocks in which ownership of an organization is divided ownership. In American English, “stock” is used in a more modern and narrow sense, referring only to stocks. In common usage, however, “stock” includes all types of equity and includes the voting power inherent in stocks. In more technical and laymen’s terms, shares represent a fraction of ownership in a company.
Shares have both positive and negative effects on an organization. The first is capital appreciation; that is, increased net worth created from the increase in shares. The second is dilution; that is, diminished value due to stock sales and dividends. These two effects are referred to collectively as the cost of capitalization. Cost of capitalization is affected by the net present value of future earnings from the sale of stocks and by the existing value of the outstanding stock and the effect of stock dividend payments.
Stockholders will normally have voting rights attached to most stocks. These rights give them the right to sell off certain percentage of the stocks or, in the case of preferred stocks, to choose the Board of Directors. To exercise this right, a shareholder must call a meeting or elect as a member of a Board of Directors. A shareholder may also sell his or her shares in order to obtain money and convert it into cash.
A corporation usually keeps its stocks in treasury accounts. This means that they are not immediately available to the general public. A majority of corporations use treasury stocks to secure long-term liabilities, such as long-term loans and leases. For example, if a company needs funds to make a large acquisition, it may sell its shares to obtain the money needed.
A Dow Jones Industrial Average index, or DJIA, is often used as a yardstick for measuring stocks. It is based on the closing prices of all U.S. corporations that trade on the Over the Counter Bulletin Board (OTCBB). DJIA rates are frequently updated on a regular basis, so investors can view their particular stocks. Many investors use DJIA as their main or other gauge for determining whether a stock is worth watching.
It should be noted that dividends are payments made directly to shareholders, rather than the company. Therefore, a company’s profits and losses are recorded in its stock market income. Dividends are usually a positive cash flow to investors.