Stocks and Stockholder Equity Research Paper_Crystal Estridge

.docx

School

National University College *

*We aren’t endorsed by this school

Course

410B

Subject

Finance

Date

May 6, 2024

Type

docx

Pages

Uploaded by Babytay281 on coursehero.com

UNDERSTANDING STOCKS AND STOCKHOLDER EQUITY Crystal Estridge What are stocks? What kind of stocks are there? Why are they important? What is a statement of stockholder equity? These are all good questions when building a business, investing in stocks, or receiving stock as an employee benefit or purchase option. A stock is a type of financial security that represents the ownership, or equity interest, of a fraction of a corporation. That equity is established on a per share basis, and the owners are often referred to as shareholders or stockholders (Brock, 2022). Each company will have a set number of shares to provide the owner and public to purchase. Each share owned is calculated into a percentage of that company. For instance, a company has 10,000 shares and the CEO has 5,000 shares, so the CEO has 50% of the business. There are also many different types of stocks a company can offer, these include Common stock, Preferred stock, Class A & B stocks, Large- Cap stock, Mid-Cap stock, Small-Cap stock, growth stock, value stock, international stock, dividend stock, IPO stocks, Cyclical & Defensive stock, blue chip stock, Penny stock, and ESG stock. When owning shares in a company you have rights to vote in the company annual meeting, which 1 share =1 vote and receive quarterly or yearly dividends but not all the share options are the same. These investment options are all created for different reasons, the most basic option is Common stock which is also usually a majority of the shares. Common stock is not a guaranteed payout of dividends but have the advantage of price appreciation gains. Preferred stock has a combined benefits of stock and bond that guarantees shareholder dividends. Some companies will have split shares like Class A & B stocks, this allows the executives and founders to have their own stake in the company as Class A that has higher voting power than Class B. Large (10+ billion), mid (2-10 billion), and small (300 million – 2 billion) Cap stock share value are based on market capitalization and they are multiplied by the outstanding shares fir the company. Growth stock is when a company is expanding at a great rate with all their financial income, profits, cash flow, etc. Value stocks are sold at a price under the market value, these are trickier to find. International stocks are as stated stock purchases in a different country. Dividend stocks are great because they can provide an income to a shareholder based on revenue and profits, this is also a good option to reinvest any dividend earning into additional share purchase if available. Initial public offering (IPO) stocks will usually list their shares on an exchange market. Cyclical stocks tend to fluctuate with the economy growth and downfalls whereas, Defensive stocks don’t move much with the economy ups and downs. Investors who want steady returns and reliable dividends should check out blue chip stocks . While there’s no hard and fast definition of blue- chip stocks, these investments generally share a few characteristics. They’re large-cap companies with name recognition, decades-long histories of reliable performance, a track record of steady earnings and consistent dividend payouts (Birken, 2022). Penny stocks are the stocks that come with higher risk then most, these stocks are priced very low and usually connected to a company in financial trouble. The final stock type is the environmental, social, and governance (ESG) where it allows a person to purchase stock in companies that have the same values and show responsibility in their corporate behavior. Each stock option should be researched before purchasing, if an individual is confused in deciding they can hire a stockbroker to assist in what options and company stock works best for their needs.

Some companies like Amazon offer stock to their employees at a lower rate for a specific time period and allow them to purchase these stocks through payroll deductions. These type of stock options are broken down into 2 different classifications: nonqualified stock options (NQSO) and qualified stock options also referred to as incentive stock options, the main difference is how they are taxed and reflect on income tax forms. NQSOs are the right to purchase shares of stock at a specified exercise price within a certain period. In most cases, a grant of NQSOs is not a taxable event for the recipient. ISOs are similar to NQSOs in that they represent a right to purchase shares at a specific price within a certain period. However, unlike NQSOs, ISOs are eligible to receive preferential tax treatment under Sec. 421. For the option holder to reap these benefits, the options must qualify as ISOs under Sec. 422 and must be disposed of in a qualifying disposition (Doerrer, 2019). One thing to always be aware of when investing is if there is an inflation at that time. Inflation is the rise in the price of goods and services over time. If prices increase and income remains fixed, the purchasing power of money falls (Chopra, 2022). When an inflation is happening within an economy, investing can be very tricky. As COVID-19 hit our country hard it created an uncertainty on where our economy is heading so this is a form of inflation risk following this pandemic. There are several ways to research companies to determine if their stocks are worth purchasing. The best way is to review their financials for the quarter or year when released to the public. Each section will provide different information that can be taken into consideration but to get a good feel if they payout dividends is through a financial report attached to the Balance sheet this is called the shareholder equity and it gives a decent picture of how the company is preforming. The statement of stockholders’ equity is the difference between total assets and total liabilities, and is usually measured monthly, quarterly, or annually. It’s found on the balance sheet, which is one of three financial documents that are important to all small businesses. The other two are the income statement and the cash flow statement (Fuscaldo, 2022). It is important to consider all stocks available, what they offer, and properly researching into the which works best for your needs. It is easily a good trade to get into for learning financial and investing personal gain and it can give a good picture on how the economy is functioning at the time.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version