Concept, Features And Advantages Of Common Stock class is for the HSC candidates or for the students of classes 11 and 12. This class is a part of HSC (11-12) [ এইচএসসি (১১-১২) ], Finance and Banking 1st paper. You can find it in the Finance 1st Paper, chapter 6, the topic name is “Concept, Features And Advantages Of Common Stock”. This class will help you in your upcoming HSC examination.
Concept, Features And Advantages Of Common Stock
Common stock is not just a piece of paper—or, these days, a digital entry—but a ticket to ownership in a company. When you hold common stock, you get to weigh in on corporate decisions by voting for the board of directors and corporate policies. Over the long term, this type of equity can offer attractive returns. But remember, this comes with a catch: if a company has to liquidate its assets, common stockholders are at the back of the line, getting paid only after bondholders, preferred shareholders, and other creditors have gotten their share.
The value of common stock issued is reported in the stockholder’s equity section of a company’s balance sheet.
KEY TAKEAWAYS
- Common stock is a security that represents ownership in a corporation.
- In a liquidation, common stockholders receive whatever assets remain after creditors, bondholders, and preferred stockholders are paid.
- There are different kinds of stock traded in the market: value stocks are lower in price in relation to their fundamentals and growth stocks are in companies that tend to increase in value due to increasing earnings.
- Investors should diversify their portfolios by putting money into different securities based on their tolerance for risk.
Common Stock Explained
Common stock is primarily a form of ownership in a corporation, representing a claim on part of the company’s assets and earnings. If you’re a shareholder, this makes “part-owner,” but this doesn’t mean you own the company’s physical assets like chairs or computers; those are owned by the corporation itself, a distinct legal entity. Instead, as a shareholder, you own a residual claim to the company’s profits and assets, which means you are entitled to what’s left after all other obligations are met.
Traded on exchanges, common stock can be bought and sold by investors or traders, and common- stockholders are entitled to dividends when the company’s board of directors declares them. Typically, they are paid out of a company’s earnings, and the decision to distribute them is made by the board taking into account factors like company performance, future capital requirements, and broader financial goals.
The first-ever common -stock was issued in 1602 by the Dutch East India Company and traded on the Amsterdam Stock Exchange. Over the following four centuries years, stock markets have been created worldwide, with major exchanges like the London Stock Exchange and the Tokyo Stock Exchange listing tens of thousands of companies.
Larger U.S.-based stocks are traded on a public exchange, such as the New York Stock Exchange (NYSE) or Nasdaq. As of mid-2023, the NYSE had some 2300 listings of its own, with another 5700 listed from the other U.S. stock markets, making the NYSE the largest in the world by market cap.1 Smaller companies that can’t meet the listing requirements of these major exchanges are considered unlisted and their stocks are traded over the counter.
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