Common Stock
Nickname
Stock
Plural Name
Common Stocks
Common stock represents ownership in a corporation. Holders of common stock have the power to elect the board of directors and vote on corporate policies. While it typically generates higher rates of return over the long term, common stock only has rights to a company’s remaining assets after the bondholders, preferred shareholders, and other creditors are paid in full. This makes this type of equity ownership riskier than debt or preferred shares.
KEY NOTES
- To issue common stock, a company must have an initial public offering. Once the IPO was completed, the general public is allowed to purchase the new stock on the secondary market.
- As the most publicly accessible type of shares issued by a company, common stock is what you will likely encounter when trading stocks on an exchange.
- It is reported in the stockholder's equity section of a company's balance sheet.
- Common stock shareholders may be entitled to receive dividends.
- It represents a residual claim to a company's ongoing and future profits.
- Over the long term, it usually outperforms bonds and preferred shares but is more exposed to volatility over the short term.
TYPES
- Growth stocks - companies that tend to increase in value due to growing earnings
- Value stocks - companies lower in price in relation to their fundamentals.