Common Stock
From ForcaWiki, the simple encyclopedia
| In one sentence | A small piece of ownership in a company that you can buy, which can grow or shrink in value and sometimes pays out a small share of the profits. |
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| Category | Finance |
| Related | Debt, Asset |
Imagine a lemonade stand is cut into 100 equal paper slips, and owning one slip means you truly own one hundredth of the whole stand. If the stand does great business and becomes more valuable, your slip becomes more valuable too. If the stand struggles, your slip loses value right along with it. That paper slip is basically a share of stock.
Common stock is the most everyday, basic kind of these ownership slips that a company can sell to raise money. Whoever owns a share of common stock truly owns a small piece of the company itself, not just money the company owes them, can often vote on some big company decisions, and gains or loses value depending on how well the company performs.
How it is different from debt
This is very different from Debt. Someone who lends a company money is owed a fixed amount back no matter how well or badly the company does, and gets paid back before stockholders see anything if the company runs into trouble. A stockholder does not get a fixed amount back. Instead, they share in the company's actual success or failure, for better or worse.
Fun facts
- Common stock gets its name to distinguish it from "preferred stock," a different kind of ownership slip that usually gets paid before common stock does, but that usually cannot vote on company decisions.
- The big movie studios you can buy stock in on the stock market sell shares of common stock, but most individual movies are financed with debt and private investment deals instead, since a single film is not something the public can easily buy a share of.
- A share of common stock is really just a claim on a slice of everything a company owns, meaning all of its assets added together, minus everything it owes.