List 1 expense that a business needs money for

Financing a Business: Stocks

Forming a Corporation To become a corporation, a business (proprietorship or partnership) must INCORPORATE

Why Incorporate? Usually, proprietorships or partnerships incorporate (become a corporation) in order to raise a large amount of money to raise capital & expand the business

How? Through an Initial Public Offering (IPO) An investment bank (like JP Morgan Chase) will manage the IPO The bank will split the company into shares & sell those shares to the public Bank will take a portion of the $ for fees The rest of the $ will go to the corporation that will be used to accumulate resources (land, labor & capital)

Simplified Example of an IPO Small airline wants to incorporate Hires Goldman Sachs as an investment bank Files the necessary papers to the Security Exchange Commission (SEC) Has an Initial Public Offering 10 Million shares are sold to the public at $50 each Goldman Sachs takes $5 Million for fees The airline raised $495 million for resources

Is a piece of ownership in a corporation Share of Stock. . . Is a piece of ownership in a corporation When the value of the corporation changes, so does the share of the stock

Definition of Value An amount that is considered fair enough where people will be willing & able to pay you in return for a good or service

Value of a company is based on… Potential for growth Reputation (past history) Internal & external events

Examples of internal Events that effect stock value New products Quarterly financial reports Changes in leadership Production delays Advertising campaigns Paying out of dividends (profits distributed out to shareholders)

Examples of external events that effect stock value International tragedies Price of oil changes War Inflation Political Instability Terrorism Strength of the economy (financial statistics) Unemployment rates

Understanding Stock Market Reports

Ticker Symbol This is the unique alphabetic name which identifies the stock.

Trading Volume How active a stock has been traded. It’s the number of shares that have been bought & sold in a day

High and Low High – Highest price the stock has sold for in a given time period (Day, Year, etc.) Low – Lowest price the stock has sold for in a given time period

Dividend The profits distributed per share of stock. If it is blank, the corporation did not pay out dividends.

The last price that the stock sold for at the end of the previous day. Close The last price that the stock sold for at the end of the previous day.

Net Change - $ value change in the stock price from the previous day's closing price.

Blue Chips Stock of a well-established and financially-sound company that has demonstrated its ability to pay dividends in both good and bad times These stocks are usually less risky than other stocks.

Different Types of Stock Common - Provides shareholders with a voice in how the company is run and a share in any potential dividends Preferred – Receive dividends before common stockholders Nonvoting ownership of the corporation

Bull and Bear Markets BULL - Label for the stock market when it is doing well and confidence is high BEAR – Label for the stock market when it is not doing well, people are selling their stocks in the expectation of reduced profits.

Homework Due Tuesday: My 5 Stocks Choose 5 corporations that you think will increase in value over the next 5 weeks TYPE a paragraph for each of the 5 In each paragraph, discuss 1) what good or service this corporation sells, 2)why you think it’ll gain in value 3)and what the stock ticker symbol is (finance.yahoo.com) 4)What market is it traded on (NYSE, NASDAQ or AMEX)?

Question What are 2 ways that investors can make money from investing in stocks?

Making $ From The Stock Market 1)Dividends 2)Selling for more than you paid for the stock Capital Gain - Difference between the higher selling price and the lower purchase Capital Loss – Difference between the higher purchase price and the lower selling price

How would you know how well the stock market, overall, is doing?

How do we know which presidential candidate is leading in an election?

Dow Jones Industrial Average Average of the performance of 30 large companies in various industries An indicator of how Blue Chip stocks performed 10,000 is a psychological barrier that many investors use to see how the market is doing historically

Standard & Poor’s 500 (S&P 500) Tracks the price changes of 500 different stocks Intended to measure the overall stock market

What is a disadvantage to having a company’s stock be so expensive? Question A student was interested in stock of Berkshire Hathaway but found that one share was priced at $161,000 What is a disadvantage to having a company’s stock be so expensive?

Stock Split Owners of common stock may sometimes vote on whether to initiate a stock split. This is where each single share of stock splits into more than one share. Why? Stock can reach such a high price that potential investors are discouraged from buying it.