Questions about shares in Stock Market

• What is a share – Purchasing a share is equivalent to owning a part in the organisation. Suppose an Organisation ABC has 1000 outstanding shares and I as an individual own 150 shares. I have 15% ownership in the organisation. With Ownership in Organisation, An Individual owning share is eligible to the profit as organisation as well as voting rights if attached?

•  Why will an Organisation share its asset and profit with public – Organisation requires money to run it operations or to start on a new opportunity. Suppose my Organisation want to add on infrastructure and requires some capital for the same.

• How does an Organisation gets the money it required – An Organisation can get the required money in two ways. Either by burrowing money in terms of debt (generating bonds is a example of debt) or selling stocks of the organisation. Organisation invites capital investments in terms of public issue of shares.

•  Are stocks a liability or Asset to the Organisation – Stocks are on liabilities side of a company. In broader terms in Accounting. Assets of an Organisation should match the liabilities of the organisation. i.e. Assets = liabilities = debt of the organisation + stocks of the organisation+ other liabilities. This gives value of stock as Assets – debt of instrument – other liabilities

• Where does an organisation sell new stocks – An organisation floats new stock in a primary market. In case organisation sells its equity/stock for first time to the public, a security is created and initial public offer (IPO) is offered in the primary market with an issue price which is offered and number of shares for the stock for public.

• Together with IPO, an already listed Organisation can also gather money from the market in terms of stock by issuing further Public Offering. Difference between IPO and FPO is while IPO are usually offered by an unlisted company in Stock Exchange, FPO is offered by already listed company in the stock exchange. An FPO can be either of fresh issue of shares or an offer for sale. An offer for sale is offered by company, in which organisation sells its share of stocks to public. Also a company can issue right issue or preferential issue.
  

•  Once a price is decided in the Primary market to the allocated shared to public, Investors trades on the shares of a stock in the secondary Market.

•  Once a fresh issue is made to the public, based on the current market price, Market Capitalization is calculated as:  Market Capitalization – Current Market Price * Total Number of shares of Company.This includes Promoters share holding in the Organisation together with public.

• Trading in general happens when a buyer meets a seller for an agreed price and for an agreed quantity. Similarly in stock market, a trade happens when ask Price (price offered by the seller to sell a share) and quantity matches the bid price (price offered by the buyer to buy a share) and bid quantity matches

•  And Last, but not the least, investment in Shares is subjected to market Risk. :)