Public companies have the option of selling stocks. Stocks are issued or placed on sell to generate revenue. Companies can either generate revenue from loans or from selling equity. When a company sells stocks, they are giving up a piece of equity. (ownership) Although many public companies decide to sell stocks instead of taking out loans; that does not mean that taking out loans is a bad idea. A public company can have outstanding shares of stock and have outstanding loans. Each company is different therefore every company will not choose to generate revenue in the same way.
Before a company issues stocks, the issuance of stocks must be approved by the board of directors. There are three basic types of stocks: common, preferred, and treasury. There are many other types of stocks, but these are the core ones. Common stocks are stocks that give the owner voting rights and dividends. It’s important to understand that a company does not have to pay out dividends to their shareholders. It is an option, not a liability. When a shareholder owns a preferred stock, they give up rights that common stockholders must gain rights that common stockholders don't have. Common stockholders have the right to vote, preferred stockholders are not allowed to vote. But preferred stockholders are entitled to receive dividends first. Some shareholders even own participating preferred stocks; this means that they receive their dividends plus the dividend that common stockholders receive. Once a company decides to buy back issued stocks, they turn into treasury stocks. All this means is that now the company has taken back ownership of a portion of the shares that they issued. Another term that one should understand before diving into stocks is PAR value. The PAR value of a stock is also called the face value. Companies have a set PAR value and they are not able to go below that price.
Stocks are valued at fair value and the market decides the price of a stock. Before buying a stock make sure you have a plan. You must decide if this a stock that you are planning to buy and sell quickly to make a profit or if it is a stock that you want to hold onto for a while. Because, for the most part the stock market is unpredictable. One day your stock can be going for a lot of money and the next it’s worth less than what you paid for. One important thing to remember is that although the price of your stock is lower or higher than what you paid for… you have not taken a loss or made a profit. If you are still the owner of the stock those are categorized as unrealized gains and losses. You will have a loss or a profit on the stock when you sell it.
