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Stocks and Stock Markets

This article delves into the concept of stock markets and the reasons businesses might sell stock to raise capital for growth. Using a donut shop example, it illustrates the financial needs for expansion and options like partnership, bank loans, or issuing stock. It explains the transition from private to public via IPOs, types of stock (common and preferred), and the advantages of each. Additionally, it covers stock prices influenced by buyers' opinions, stock exchanges (like NYSE and NASDAQ), and stock indices that track market trends.

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Stocks and Stock Markets

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  1. Stocks and Stock Markets

  2. The Stock Market

  3. Why would a business/corporation want to sell stock? To raise capital to invest in company growth

  4. Example: A Donut Business

  5. One Donut Store • Kroger wants you to supply 10 of their stores with your donuts.

  6. You need: • Abigger donut fryer • A bigger sugar machine • Two delivery trucks • Storage space for supplies • More floor space for the new equipment • 5 new employees

  7. You need $500,000 to expand. • You have $100,000 available to invest. • What are your options for coming up with the other $400,000? Partnership Bank loan Sell stock to investors

  8. How does a company go from private to public ownership? • Initial Public Offering - IPO • Go through an investment bank/broker who will sell the shares to the public

  9. What is stock?

  10. What can a majority owner do? • Has control to run the company his/her way. • Owns more than 50% of the stock.

  11. What are the two types of stock? • Common and Preferred

  12. What are the advantages of owning common stock?

  13. What are the advantages of owning preferred stock?

  14. What are dividends? • Donut shop makes $50K a year with 10,000 shares. • If the shop pays all its profits in dividends, the dividend is $5 per share.

  15. Why do people purchase stock? • Make a profit • Receive a dividend

  16. What determines a stock’s price? • The opinion of buyers regarding the financial future of the company

  17. Two Types of Stock Investments (reflect the reasons people purchase stock) • Growth (stock price increases-short term profit) • Quality of projected dividend payments (long term stream of income)

  18. What is a stock EXCHANGE? • A place for buying and selling stocks • Is it a real place? • Yes and no, some stock exchanges are virtual or electronic.

  19. How do the laws of supply and demand apply to the prices of stocks in a stock market?

  20. What might motivate a buyer to pay a higher price for a company’s stock? • Ex. Why pay more for Exxon than McDonalds? • Quality: long term health of the company, expected earnings & dividends, etc

  21. What are the major stock exchanges? • NYSE • NASDAQ • AMEX • How are they different from each other?

  22. New York Stock Exchange

  23. What are stock indices? Stocks grouped by some category • What do they tell you? Price trends in specific industries

  24. What are the major indices? • Dow Jones Industrial Average • (30 select industrial stocks) • Standard and Poor’s 600 (S&P 500) • (500 general stocks)

  25. What is a composite index? NASDAQ Composite NYSE Composite by industry • What might an energy index show?

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