Buying company stocks
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How to Buy Stocks
If you're seeing this message, it means we're having trouble loading external resources on our website. To log in and use all the features of Khan Academy, please enable JavaScript in your browser. Donate Login Sign up Search for courses, skills, and videos. Introduction to interest. Relationship between bond prices and interest rates. What it means to buy a company's stock. Lesson Summary: Financial assets.
Practice: Financial assets. Next lesson. Current timeTotal duration Google Classroom Facebook Twitter. Video transcript Voiceover: Let's talk a little bit about what it means to own shares or stock in a company, so shares or stock.
I think we all have a general sense, but what I want to do in this video is make it a little bit more tangible to really understand exactly what you're buying when you buy a share of stock. So the general sense, and this is exactly what it really is, is when you buy stock or you buy shares, you're essentially becoming a partial or a part owner of the company. Part owner of company. Just to contrast this with bonds because they're often kind of used in the same phrasing, "Oh, I'm gonna go buy some stocks or bonds," or "I deal with stocks and bonds.
Bonds, you become part lender to the company. Part lender to the company. I'm not going to go into detail in that because the focus of this is going to be stock, but it's good to keep in mind that they're very different things. Here, you're owning the company. Here, you're lending to the company. So just to make this a little bit more tangible of exactly what we're owning, let me draw a simple balance sheet for some company X. So this is Company Let me do a new color. Let's say we're dealing with Company X right here, and let's say if we looked at Company X's assets, and when we talk about assets, it really is the same thing that we mean in the real world, or in our everyday life when we talk about assets.
The things that have value. Things that are going to give us some type of future benefit. A house is an asset because it gives us the future benefit of being able to live in it and protecting us from cold weather and rain. Cars are assets because they give, provide us some transportation.
Cash is an asset because it can be exchanged for things we need in the future. All of these A loan to someone else is an asset because in the future, they will pay us back.
A loan to me is a liability, which we'll talk about in a second, but anyway, let's just in the very abstract sense, say this is Company X's assets. All of the things that will generate future value. Now, let's say that Company X has also borrowed some money, and maybe they borrowed it by issuing bonds, which I will not go into detail on.
This could have been a straight debt from a bank, or this could have been via a bond issue. I won't go into that too much, but I think you get the idea of what I mean of part lender, but this is debt.
Let's say that's all of their liabilities. There are other liabilities other than debt, but for simplicity, let's say that's their only liability and debt tends to be the biggest. Now, what's left for the owners? A good way to think about that is what would happen if this company were sold and the debt paid off.
I'll do that in this other green color. Owner's equity. This is completely the same idea as when people talk about having equity in a house. It's completely analogous. You can see, very simply, that assets.
I'll write this down. You're getting a little bit of an introduction to accounting right here, but assets are going to always be equal to liabilities plus equity. Because essentially, or you can view it this way: If you subtract liabilities from both sides, assets minus liabilities is equal to equity. This might be a little bit more intuitive. What we have leftover is always what we own minus what we owe.
That is what the owners have. Now, when we say that I'm part-owner of a company, that means that I have a piece of this pie right here. This is what I am a part-owner of, the equity. How much is each share worth if we believe all of these numbers? If someone was willing to pay more than that, maybe we would sell it.
Just to make all of this a little bit more tangible, let's look at an actual example of a company to show you that I'm not making all of this stuff up. I got this off of your traditional financial sources. This is actually from the filings of this unnamed company, and you'll get extra bonus points if you figure out what this company is, and this is their actual stock-trading activity, and I just want to draw the same diagram that I drew up here, the same diagram that I drew up here, to really, on this company, so you can kind of see that this actually happens in the real world, so first let's draw their assets.
Let's say this is Company X, and let's say these are its assets right there. Its assets. Let's go to its balance sheet. This is actually what they reported. This is June 30th, well, we want to take the more recent date.
They're just trying to compare to what they had before. Let's look at these, this is some time ago, but it doesn't matter. We're learning. This is, we're not trying to decide whether we want to invest in this right now. This is a very old financial statement, but let's just look at what they're saying.
They have our total assets here. You might be curious about, "Hey, what's all this current asset business? So, for example, accounts receivable. That's money that other maybe vendors owe them, that they're going to pay very soon. Inventories, these are things that they have maybe in the warehouse that they can sell and turn into cash very quickly.
Other current assets, maybe that's stock or some other type of investment that they could sell and turn into cash. So they have 18 million of current assets, that's things that they can turn into cash very easily and very quickly, definitely within the next year.
Then you have some property, plant and equipment. Maybe those are trademarks or patents, or who knows what they are? Now let's go to the liabilities. They have some current liabilities, 16 million. Current liabilities, just so you know, those are liabilities. These are things that they have to pay in cash within the next year. It could be debt, it could be payables. They have to pay some other vendors. Who knows what it is? But you can kind of view it as debt on some level, maybe debt that you have to pay in the next year.
Then the have long-term debt of 5. If you add these two up, you get pretty close to about 22 million, so just for simplicity, I'll put it over here as 22 million. So this company has 22 million in liabilities. These are their assets, just to get all the labeling right. So what's left for equity? We'll just draw it on this simple diagram. We have 8 million left for equity. The exact number is 8. Well, then you're going to divide by the total number of shares, and you'll see this in some financial statements, and I won't go into the details of the difference between basic and diluted, but the numbers are very, very close, so we don't have to worry about it too much.
But let's just say that this company has 2. So if the book value is 8. I mean, I wrote 8 here, how much should each of these shares, how much should each of these, and when I say book value, I mean these are their books. According to their books, the equity is worth 8.
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What it means to buy a company's stock
If you're seeing this message, it means we're having trouble loading external resources on our website. To log in and use all the features of Khan Academy, please enable JavaScript in your browser. Donate Login Sign up Search for courses, skills, and videos. Introduction to interest. Relationship between bond prices and interest rates. What it means to buy a company's stock.
10 Things to Remember about Owning Shares
In order to buy stocks , you need the assistance of a stockbroker who is licensed to purchase securities on your behalf. However, before you make a decision on a stockbroker, you need to figure out what type of stockbroker is right for you. The only interaction with an online broker is over the phone or via the Internet. Cost is usually based on a per-transaction or per-share basis, allowing you to open an account with relatively little money. Since these types of brokers provide absolutely no investment advice, stock tips or any type of investment recommendations, you're on your own. The only assistance you'll receive is technical support for the online trading system. However, online brokers typically offer investment-related website links, research, and resources, but these are usually third-party providers. If you feel you are knowledgeable enough to take on the responsibilities of directing your own investments, or if you want to learn how to invest without making a large financial commitment, this is the way to go. Discount brokers with assistance are basically the same as online brokers, with the difference being that they're likely to charge a very small account fee to pay for the extra assistance. This assistance, however, is usually nothing more than just providing a bit more information and resources to help you with your investing.
Why Zacks?
A few stocks spiked upward. Virtual healthcare provider Teladoc is another big winner that's benefiting from the rise in telehealth driven by the pandemic. But this positive news was limited to a small group of stocks.
3 Stocks I'm Buying Right Now
Why Zacks? Learn to Be a Better Investor. Forgot Password. Until recently, private stocks were for the rich only. However, the marketplace is changing and becoming more democratic. When all the changes are in place, the Average Joe and Jane will be able to buy private stocks with little fuss. To buy private stocks, it helps to be wealthy. Most private stock deals require the buyer to be "accredited. To sell you private shares, a company must qualify for an exemption from registration with the U. Securities and Exchange Commission. Rules set forth in Regulation D limit how much and to whom the companies can sell private shares. You can deal directly with a corporation or go through a broker that specializes in private placements.
I Want to Start Buying Stocks—But Where Do I Start?
Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card companies and banks from which MoneyCrashers. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. Advertiser partners include American Express, Chase, U. Bank, and Barclaycard, among others. Do high brokerage costs deter you from investing in stocks of financially stable, profitable companies? Once companies list on a stock exchange, they employ the services of a transfer agent, who handles all administration related to share transactions — most listed companies use Computershare to provide these services. And one of the many services Computershare provides is the administrating of direct stock purchase plans for companies who want to sell their shares to the public without engaging a stockbroker. A direct stock purchase plan allows you to buy shares of a company through its transfer agent instead of through a broker. In essence, you cut out the middleman and save yourself a pretty penny in the process. Listed below are five well-known companies that have the most active direct stock purchase plans:.
