Common Stock

Common stock, abbreviated as CS, is the ownership in a corporation and represents a claim on part of the company's assets and earnings.  When people talk about investing in stocks, they are usually referring to common stocks.

key points about common stock

• Ownership  -  When an investor buys shares of common stock, they are essentially buying a piece of ownership in the company.  Shareholders of common stock typically have voting rights in the company, which allows them to participate in corporate decisions such as the election of the board of directors and certain major corporate actions.
• Dividends  -  Common stockholders may receive dividends if the company decides to distribute a portion of its earnings to shareholders. However, dividends are not guaranteed and can vary depending on the company's financial performance and its dividend policy.
• Residual Claim  -  In the event of liquidation or bankruptcy, common stockholders are the last in line to receive any remaining assets after creditors, bondholders, and preferred shareholders have been paid.
• Risk and Return  -  Common stocks are considered riskier investments compared to bonds or preferred stocks because their value can fluctuate significantly in response to changes in the company's performance, industry conditions, economic factors, and investor sentiment.  However, common stocks also have the potential to offer higher returns over the long term compared to less risky investments.
• Market Value  -  The price of common stock is determined by supply and demand in the stock market, and it can change frequently based on investor perceptions and expectations about the company's future prospects.

Overall, common stock represents an ownership stake in a corporation and offers investors the opportunity to participate in the company's growth and success through capital appreciation and potential dividends. However, investing in common stocks also involves inherent risks, and investors should carefully consider their investment objectives, risk tolerance, and portfolio diversification strategy before investing in equities.

 

Common Stock Formula

\( CS = E_t - R/E  \)

Symbol

\( CS \) = common stock

\( R/E \) = retained earnings

\( E_t \) = total equity