Post on 23-Dec-2015
Stock Market InvestmentStock Market Investment
Introduction
Session 1A
Session 1 A: Introduction to Equities
What are shares and why do companies issue them?
Where do these shares trade? What makes the price of these shares go up
and down? Where do I find investment information?
The Company
Discovery Café
cyber café
The CompanyThe Company
The Company Founders divide the company into shares based on their initial contribution.
Elisabeth OlthetenChairman of the Board
The CompanyThe Company
As the Company grows the need for financing extends beyond the resources of the original partners.
Elisabeth OlthetenChairman of the Board
Shares Shares
Lets divide the company into 3,000 shares Lets keep 50% in the hands of the
founders…… and sell the remaining 1,500 shares at $100 per share
This brings $150,000 of additional capital into the company.
Shares Shares
MAIN STREET Shares for Sale
Common SharesCommon Shares
The new partners are shareholders.
Shareholders have equity,- partial ownership,- of the company.
Common shares represent ownership of the company.
Discovery Cafe Discovery Cafe
This is to certify that
Elisabeth Oltheten
is the record holder of 3,000
shares of The
Discovery Cafe Company
signed and authorizedJohn Q. DorsetTransfer Agent
Elisabeth OlthetenChairman of the Board
The CompanyThe Company
Elisabeth OlthetenChairman of the Board
Market ValueMarket Value
The Market Value of a share is the most recent price at which the share was bought and sold. If someone bought shares of Discovery Cafe for $100 per
share , then your shares are probably worth close to $100 per share too..
The Capitalization is the market value of the company Discovery Cafe has 3,000 shares outstanding; at a market
value of $100 per share, the company is capitalized at $300,000.
Price MovementsPrice Movements
• The Mayor has coffee and a croisssant at the Discovery Café and gets food poisoning.
40
50
60
7080
90
100
110
120
The Price goes down
Market Value Market Value
If you purchased 100 shares of Discovery Cafe at the initial price of $100 per share then at $50 per share your $10,000 investment is now worth $5,000.
100 * $100 = $10,000
100 * $50 = $5,000
The company’s market capitalization is now
3000 * $50 = $150,000
Price MovementsPrice Movements
• The Governor holds a Press Conference at the Discovery Café and says it’s his favorite place.
405060708090100110120130
The Price goes up
Market Value Market Value
If you purchased 100 shares of Discovery Cafe at the initial price of $100 per share then at $120 per share your $10,000 investment is now worth $12,000.
100 * $100 = $10,000
100 * $120 = $12,000
The company’s market capitalization is now
3000 * $120 = $360,000
Price MovementsPrice Movements
• The Price of the stock goes up and down based on the perception of the underlying value of the company.
Going Public Going Public
As Discovery Cafe becomes more successful we can open branches across the country. To finance this expansion we can issue and sell more shares.
Having exhausted our supply of family and friends we now wish to sell shares to the general public.
Going Public Going Public
We decide to create and sell 100,000 Class B shares to the general public.
We must register our stock with the Securities and Exchange Commission.
We must issue a prospectus. Until the SEC approves our application we must bind
our prospectus in red. This is called the Red Herring.
Initial Public Offering Initial Public Offering
Our Investment Bank agrees to underwrite the Discovery Cafe issue.
The day before the shares are offered to the public the underwriter prices the issue. If our underwriter prices Discovery Cafe at $40 per share then our 100,000 shares generate $4 million.
The following day the underwriter sells the shares to the public.
Over the CounterOver the Counter
• Our stock will trade over the counter and be quoted as part of NASDAQ - probably under small cap issues.
• If there is enough activity in Discovery Café then our stock will be listed with the National Market Issues.
• We will be assigned a four character ticker symbol. (CAFE)
ListingListing
• If we meet the listing requirements of the American Stock Exchange (AMEX) or the New York Stock Exchange (NYSE) we can list Discovery Café on an exchange.
• Our stock will be given a one, two, or three character ticker symbol. (DC)
The EndThe End