1. The Stock Market What you need to know to begin investing.

2. How Do Companies Raise Money? Form a partnership Borrow Reinvest profits Issue bonds Sell stocks We’ll explore selling how businesses sell stocks to raise money

3. What Is Stock? Stock represents part ownership in a company Anyone who owns stock is called a stockholder or shareholder Companies sell stock to raise money People buy stock hoping the value will rise and they will make a profit

4. Corporate Structure Businesses Owners and investors are protected from any financial claims Financial risk would be limited to the amount of money invested If the company fails the investors are not personally responsible for that debt

5. Who Runs the Corporations? Board of Directors They oversee all the corporation’s business They must be elected The Board will vote to “go public” Sell shares of stock to the public in order to raise money for company expansion Does not run the day-to-day activities—elects a president and other officers

6. How Are Stocks Issued? There are 2 steps to issuing stocks They are initially issued in the primary market After the initial sale, they are thereafter sold on the secondary market An investment banker will be hired to study the market and set a fair trading price The investment banker buys all the stock and resells it to the public (underwriting)

7. The Secondary Market The New York Stock Exchange (NYSE) & the American Exchange Also includes some Regional Stock Exchanges and the Over-the-Counter Market This the the stock exchange where stocks are bought and sold They do not own stocks They do not influence prices They only function as an auction Buyers & sellers determine prices

8. Getting Ready to Trade A company must file a registration statement with the Securities and Exchange Commission This statement contains hundreds of details about the company’s financial condition A prospectus will be issued which also contains financial information about the business and is given to all potential investors There will be an initial public offering (IPO)

9. What Is an IPO? The company’s way of telling the world they are ready to sell stock. The price will be fixed for the IPO After this first sale, the price will fluctuate depending on supply and demand The company will advertise it’s IPO by advertising in the Wall Street Journal or other financial papers

10. Tombstones These ads are called “Tombstones” Some say because of the black borders and heavy dark ink they resemble graveyard tombstones Others say the way the words are arranged are like the format on tombstones

11. Stock Ownership Even if you purchased only 1 share of stock in a company, you own part of everything the company owns To document ownership companies issue a stock certificate to each shareholder which shows the number of shares owned by the person Stocks may also be held by institutions

12. There Are Two Kinds of Stock Common Costs less Do not get preferential treatment Preferred Stock Costs more Preferential treatment

13. Common Stock Owners share profit (if company is profitable) Gain income through dividends and dividend increases Benefit as the stock increases in price (capital appreciation) Do not get preferential treatment like preferred stockholders

14. Preferred Stock May be issued after common stock is issued Receive dividends before common stockholders If company is forced to liquidate preferred shareholders receive their investment back before common shareholders Costs more than common stock Get a fixed dividend

15. Owners Have the Right to Vote Can vote for Board of Directors Annual meetings held where shareholders vote on issues Any shareholder can make suggestions and ask questions SEC requires an Annual Report be issued once per year Yearly record of company’s growth Financial report card

16. Where Do the Profits Go? Dividends are paid to shareholders Board decides how much An equal dividend is paid for each share Some corporations don’t pay dividends If dividends are consistently paid the stock is known as “income stock” Income stocks provide a steady cash payment to shareholders

17. Where Do the Profits Go? Corporations reinvest the money This is called retained money Used to finance expansion and growth Reduces the amount needed to borrow from a bank Called “internal financing” because the money comes from inside the company

18. Stock Splits Another way to reward stockholders (besides dividends) Another reason for a stock split would be to reduce the price of the stock Can split 2:1 or 3:1 or other amounts A stock worth $60 split 2:1 results in two shares each worth $30

19. How Did the Stock Market Get Started? We understand what stocks are and why a company would want to incorporate How did the stock exchange come into being?