An Overview of the Stock Market

Stocks are shares of ownership in a corporation. They give the stockholder the ability to have on vote in a corporation's decisions, and technically, a small percent of ownership in a corporation. The percent of ownership that one stock holds varies from corporation to corporation. Some corporation s issue very few shares of stock, giving the owner a larger ownership percentage per share. Other large corporations issue hundreds of millions of stocks, therefore limiting the amount of ownership that an investor has per share. Some shares can be more enticing to investors because their corporation will pay a dividend.

A dividend is a taxable payment declared by a company's board of directors and given to its shareholders out of the company's current or retained earnings, usually quarterly. They are usually given as cash, called a cash dividend, or stock, called a stock dividend. Dividends give an investor a reason to own a slow moving company because they know that they will still be paid on the quarter. Companies are not required to pay dividends. Dividends are also called payouts.

The market capitalization of a corporation is what the company is really worth on paper. It is the sum of a corporation's long term debt, stock, and retained earnings. Basically, it is the market price of a company, which you can calculate by multiplying the number of outstanding shares a company has by the current price of the share. It is interesting to note that this is much different than a company's book value. Book value is the common stock equity that is recorded on a financial balance sheet. It is equal to total assets minus liabilities, intangible assets and preferred stock. A company's market capitalization can be worth much more than the company's actual book value, because investors expect the company to grow, so they invest for the future.