Forms of Businesses

Sole Proprietorship• A company owned and run by one

person who receives its profits or bears its losses.

• A proprietorship is NOT separate from its owner, who is liable for the company debts (unlimited liability)

• Start / End / Taxes / Workload / Resources $

Partnership

• A company owned and managed by two or more people who share its profits or losses

• A partnership is NOT separate from its owners, who are liable for the company’s debts (unlimited liability)

• Start / End / Taxes / Workload / Resources $

Corporation

• A company legally separate from the stockholders who own it and the managers who run it.

• A corporation offers these advantages:

• (1) Limited liability, which means that stockholders'

responsibility for the company's debts is limited to

their investment in its stock;

Corporation• (2) long life, which means a corporation continues to exist whenever its stockholders or

managers change;

• (3) easily transferable ownership, which means that stockholders can easily sell their ownership shares in the stock market (unless its a private company).

Start / End / Taxes / Workload / Resources $

Corporation

• (4) specialized management

Stock Ownership

• Allows shareholders to attend and vote during the Annual Shareholder’s Meeting

• If the shareholder cannot attend, votes may be cast via a PROXY (allows you to assign your voting rights over to an agent)

Issue Stock

• The F I R S T time stock is issued, the money goes directly to the company -- way for companies to raise capital

• Investment bankers underwrite the new issue by buying the stock from the corporation and then selling it to the public.

Investment Banker

• Investment bankers advise their clients on high level issues of financial organization.

• They also handle selling a company’s stock to the public.

Prospectus

• A formal legal document describing details of a corporation.

• Generally created for a proposed offering (usually an IPO), but it can still be obtained from existing businesses as well.

• Includes company facts that are vitally important to potential investors.

Example of Tombstone Ad

Newspaper Quotes

Column descriptions are located on MHS Website / Personal Finance / “Newspaper Quotes”

INTERNET QUOTE

What is the ASK Price?

Price investors will pay for a stock.

What is the BID Price?

Price investors will receive for selling a stock

What is an EX-Dividend Date?

Date after which a stock’s buyer will NOT get the right to receive a

dividend.

What is Market Capitalization (Market Cap)?

Total current market value of all outstanding shares of a company

-- $ Stock Price X # of outstanding shares

What is a stock symbol?

A group of 1-4 letters used in place of a company’s full or

abbreviated name

Finding stock symbols can sometimes require research

• Oreo is a B R A N D name, not a company name

• Research company who makes Oreos

• Can’t find Nabisco on the stock market

• Private company?

• No

• Learn Kraft Foods Company (owner)

= Parent Company

S U B S I D I A R Y

• A company that has at least half of its stock owned by another business

P A R E N T C O M P A N Y

• A business that controls another company by owning most or all of a company’s stock

Finding a Symbol

1. Is the item a brand or product?

2. Who makes it?

3. Not listed on stock market?1. private company

2. Subsidiary

4. Find Parent Company

Supermarket

• Super Market – super market that’s not a grocery store

Auction Market

• Buyers and sellers interacting by announcing bids and offers and thereby determining prices, usually at a physical location like a trading floor

• NYSE (New York Stock Exchange) – largest, oldest, and most widely-known

• Hours 9:30 a.m. to 4:00 p.m.

NASDAQ

• Computerized market that relies on Market Makers

not a physical place

Market Maker

• A business that stands ready to buy or sell stock at publicly quoted prices

• Keeps an inventory of stock (like a shoe store)

• Investors deal directly with market makers, not other investors

Bid Price

• The highest quoted price at which a market maker is currently willing to BUY a stock

Ask Price

• The latest quoted price at which a market maker is currently willing to SELL a stock

Market Maker

• Always quotes a Bid / Ask price and the number of shares it stands ready to buy or sell at those prices

Stock Index

• Statistical gauge that uses a given number of stocks to measure changes in the overall stock market

DOW Jones Industrial Average (DJI)

• Formula based on the stock prices of 30 industrial companies

• Formula adds up the stocks’ prices and the divides by a certain number to derive the average (D i v i s o r)

• The DowDow Jones Industrial Average is a key barometer of U.S. equities that is recognized and used the world over.

United Technologies Corp.International Business Machines Corp.3M Co.Caterpillar Inc.American International Group Inc.Johnson & JohnsonProcter & Gamble Co.Boeing Co.Wal-Mart Stores Inc.American Express Co.Altria Group Inc.Citigroup Inc.Exxon Mobil Corp.Merck & Co. Inc.Coca-Cola Co.E.I. DuPont de Nemours & Co.General Motors Corp.Verizon Communications Inc.JPMorgan Chase & Co.Home Depot Inc.Honeywell International Inc.General Electric Co.Alcoa Inc.Pfizer Inc.McDonald's Corp.Microsoft Corp.SBC Communications Inc.Walt Disney Co.Intel Corp.Hewlett-Packard Co.

IndustryCompany

NameCompany Name

Technology 1. Microsoft 2. IBM

3. Intel 4. Hewlett-Packard

Telecommunications

1. Verizon 2. SBC Communications

Financial Services

1.Citigroup 2. American Express

3. J.P. Morgan 4. American Int'l Group

Manufacturing/heavy industry

. 1. Alcoa 2. Boeing 3. Caterpillars

. 4. DuPont 5. Exxon Mobil 6. Honeywell

. 7. GM 8. General Electric

. 9. 3M 10. United Technologies

Consumer products/services

. 1. Coca-Cola 2. Home Depot 3.Pfizer

. 6. Merck 5. McDonald’s 4. Johnson & Johnson

. 7. Altria Group 8. Procter & Gamble 9. Wal-Mart

. 10. Walt Disney .  .

DOW

• Price-weighted - company’s weight or importance depends upon “price’

• i.e. 1% change in a high-priced stock has larger impact than a 1% increase in a lower-priced stock

NASDAQ Composite Index (^IXIC)

• Nearly 4,000 companies listed on NASDAQ Stock Market

• Popular gauge for technology stocks

Russell 2000 Index

• Gauge of smaller companies

• Of 3,000 U.S. largest companies, the smallest 2,000 represent the Russell 2000

S & P 500 (GSPC)

• Popular measure of stock prices consisting of 500 large companies that represent the major sectors of the U.S. economy

• Value-weighted - weight or importance of each company depends upon its market cap ( outstanding shares X price)

=

Does the SPY match closely with the S&P 500

index on the chart?

¹As of 21-Mar-06

Last Trade:

130.38

Trade Time:

4:15PM ET

Change:

  

              0.79 (0.61%)

Prev Close:

129.59

Open:

129.53

Bid:

N/A

Ask:

N/A

NAV¹:

N/A

Day's Range:

129.45 - 130.51

52wk Range:

113.55 - 131.47

D O W

DOW vs S & P 500

Large-Cap Stock

• Companies whose market capitalization is large ($$$$$)

• $5 Billion or more

• IBM Market Cap: 200.63B

Small-Cap Stock

• Companies whose market capitalization is small ($$)

• Under $500 Million

• 1-800-Flowers.com Market Cap: 454.74M

Bull and Bear Markets

Bull and Bear Markets

• Bull – prolonged period of rising stock prices

• Bear – prolonged period of falling stock prices and a general feeling of investor pessimism

MARKET ORDER

• Order to buy/sell stock at the best possible price

• a/k/a current price• Risk in a Market Order?

• actual price at which your trade will be executed - unknown

MARKET ORDER

What might change the price?

-- price moving quickly (volatile)

-- placing orders when market is closed

LIMIT ORDER

• Order to buy/sell stock at a specified price, or better

LIMIT DAY ORDER

Execute buy/sell order some time during that trading day

No execution order is automatically cancelled

GTC (Good’til Cancelled)

Order stands until it is filled or until investor cancels it

Broker policy – may automatically cancel GTC orders after 60/90 days

-- may or may not renew a cancelled GTC order for you