how stock market works
How the Stock Market Works
Why Do Companies Issue Stock?
Companies throughout the world issue new stock shares every day. But what is stock, and why does a company issue it? To help you to better understand these important concepts in this tutorial we will discuss:
What is Capital?
Equity vs. Debt
Why Do Corporations Issue Stock?
Advantages for Stock Holders
Let us begin by defining the word capital.
What Is Capital?
Let's imagine that you decide to start up your own ice cream shop business. You will need to invest in equipment, food supplies and property. All the money that you invest to start your business is called capital. Essentially, the capital of a business consists of all of its assets (or items to assist in the creation of wealth).
What if it dawns on you that you don't have enough cash to buy all the needed assets? Let's see how new businesses and companies deal with this problem.
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Equity vs. Debt
To start a new business (or fund a new project) a company can raise money in two ways - by selling shares of equity or by incurring debt. If the owner of our ice cream parlor invested all their own savings to buy the materials necessary to start the business, they made an equity investment in the company. Equity is simply ownership of a corporation. Typically, ownership units in a corporation are referred to as stock.
However, if our owner did not have necessary funds to start their own business they could finance their operation in one of two ways:
1. Issue stock (or certificates of partial ownership in his company) to people who may be interested in helping their venture out in return for a proportional share of the profits that the company might generate.
2. Borrow money that will need to be paid back with interest.
So, what are the advantages of selling stock?
Top
Why Do Corporations Issue Stock?
Businesses issue stock to raise capital.
Advantages of issuing stock:
1. A Company can raise more capital than it could borrow.
Why Do Companies Issue Stock?
Companies throughout the world issue new stock shares every day. But what is stock, and why does a company issue it? To help you to better understand these important concepts in this tutorial we will discuss:
What is Capital?
Equity vs. Debt
Why Do Corporations Issue Stock?
Advantages for Stock Holders
Let us begin by defining the word capital.
What Is Capital?
Let's imagine that you decide to start up your own ice cream shop business. You will need to invest in equipment, food supplies and property. All the money that you invest to start your business is called capital. Essentially, the capital of a business consists of all of its assets (or items to assist in the creation of wealth).
What if it dawns on you that you don't have enough cash to buy all the needed assets? Let's see how new businesses and companies deal with this problem.
Top
Equity vs. Debt
To start a new business (or fund a new project) a company can raise money in two ways - by selling shares of equity or by incurring debt. If the owner of our ice cream parlor invested all their own savings to buy the materials necessary to start the business, they made an equity investment in the company. Equity is simply ownership of a corporation. Typically, ownership units in a corporation are referred to as stock.
However, if our owner did not have necessary funds to start their own business they could finance their operation in one of two ways:
1. Issue stock (or certificates of partial ownership in his company) to people who may be interested in helping their venture out in return for a proportional share of the profits that the company might generate.
2. Borrow money that will need to be paid back with interest.
So, what are the advantages of selling stock?
Top
Why Do Corporations Issue Stock?
Businesses issue stock to raise capital.
Advantages of issuing stock:
1. A Company can raise more capital than it could borrow.