The stock market or share market is often known as is the market for buying and selling shares in public companies. Shares represent an ownership claim on the company, and consequently a claim on future earnings. It offers a platform to facilitate the seamless exchange of shares.
Only the Public limited companies are listed in share markets where a large number of people are involved in open market trading. Thus, a space to buy and sell shares of Public limited Companies is known as the Share market.
The company is said to be Public when a company gets listed on an exchange. And investors can buy and sell their shares. The process of taking a company public is known as an Initial Public Offering (IPO). Going Public crucially means existing shareholders will be selling some of their shares to the public.
Furthermore, going public is a magnificent way for a company to raise funds and its profile. The higher profile, as well as the extra funds, will allow the company to expand faster and meet its goals.
A common stock gives investors an ownership stake in a company. Investors holding common stock typically have the right to vote on the company’s board of directors and to approve major corporate decisions, such as mergers (though some companies have a nonvoting class of common shares). The most attractive feature of common stock is that its value can rise dramatically over time as a company grows bigger and more profitable. This can create enormous returns for investors.
Common Stockholders only get a dividend if the company is in profit. Otherwise, they will not be reward with any dividends. It gets second priority while providing dividends to the shareholder.
Preferred stock often works more like a bond than common stock does. An investor holding Preferred stock does not have the right to vote on a company’s board of directors. And also to approve the major corporate decisions. They also have limited potential for capital gains.
The most attractive feature of Preferred stock is they are paid before common stockholders receive dividends. They have a higher dividend yield than common stockholders usually and have a greater claim on being repaid than shares of common stock if a company goes bankrupt.
The price of a stock is determined through demand and supply. When the demand of product services increases in market and if supply decrease then the price of share increase and when the demand of products and services decrease in the market and if supply increases then the price of fall down, as a result, company as well as investors may have to face a lot of losses.
The stock’s value is determined by the company’s intrinsic value as well as other external factors (e.g. being the market leader). That is, how much is the company worth today, taking into consideration today and future profits. There is no ‘correct’ way of calculating the intrinsic value of a company, though there are a lot of different models.
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