Business and Economics
Reporting
Professor Lou Ureneck
Stocks and stock markets
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Corporations
How corporations raise capital
Initial public offering
Secondary market for stocks
How markets operate
Putting a value on a share of stock
Regulation of markets
Issues for journalists
What is a corporation?
A business enterprise in which the ownership of
the company is not the same as the
management.
The ownership is expressed in shares of stock.
The liabilities of the company remain with the
company and do not adhere to the owners.
More about corporations
For-profit corporations: Google, Microsoft,
Nokia
Not-for-profit corporations: Universities,
museums, charity organizations.
Among for-profit corporations:
Publicly traded corporations
Privately held corporations.
For-profit public corporations
The stock is traded on stock exchanges – or it
has more than a few stockholders.
It is required to report important business
information to the government and the public.
U.S corporations or corporations whose stock is
traded in the US report to the Securities and
Exchange Commission.
Link
Ukraine corporations: Securities Commission.
Why form a corporations?
One reason is to raise capital for growth.
Corporations raise capital in three ways:
They earn it (profit)
They borrow it. (Short-term loans or bonds)
They sell stock – ownership in the company.
The process for raising capital through
the sale of stock
Somebody has an idea for a business. The business
is started but it quickly discovers that it needs
capital to build factories, hire people, buy
marketing campaigns, etc.
It retains an investment bank, which helps it launch
an Initial Public Offering. IPO
A prospectus is written, the number and price of
the shares of stock are determined.
The stock is sold.
But we are not done yet …
Once the stock is in circulation, it no longer
belongs to the “corporation.” It belongs to the
owner of the shares, who is a proportionate
owner of the company.
Owners are free to sell the stock. This selling and
buying is called the secondary market. IT IS
THE STOCK MARKET.
The example of baseball cards
A corporations sells them to children. The
corporation gets the money from the sale of
the cards.
Once children own the cards, they can sell and
buy them to other children. The transaction is
between the children – not the company.
This is a secondary market in baseball cards.
What is a company worth?
Many ways to answer the question.
One way –
Number of shares of stock X price per share.
This is called the company’s “market
capitalization.”
http://finance.yahoo.com/q?s=MSFT&ql=0.
Who determines the price of a share
of stock?
The market – a willing seller and a willing buyer.
They agree on a price. Each time there is a
new transaction with a new agreement, there
is a new price. So the prices goes up and down
depending on the perceived value of the
stock.
Nobody sets the price. The market determines
the price.
How is the transaction handled
Sellers and buyers work through brokers who
take a fee for the transaction.
The brokers bundle sell and buy requests and
work through representatives of the many
exchanges around the world.
How much is a share of stock worth?
It all depends on future profit.
A buyer is paying for a profit stream.
Two ways to make money on shares of stock:
The stock prices goes up, and the stock is sold.
The corporation distributes its profit –
dividends.
A closer look – three ratios
• Price per share
• Earnings per share
• Price per share/ earnings per share
This is an expression of how much we are willing
to pay for each dollar (or grivna) of profit
An example
Microsoft
http://finance.yahoo.com/q?s=MSFT&ql=0.
Today’s price per share
Earnings per share
Price to earnings ratio:
Why would we pay so much?
For future profits…
It’s all about earnings, usually
Fundamental analysis: Predicting a company’s
future earnings.
But there is also speculation based in
momentum --Technical analysis: Predicting the behavior of the
herd.
Fundamental analysis
What are the factors that we can examine to
understand the future strength and profits of
the company?
The New York Stock Exchange
Individual stocks
Open price, closing price, change in price.
http://www.nyse.com/
Indexes
Baskets of stocks.
Dow Jones Industrials
Standard and Poor’s 500
An exercise
Go to Yahoo finance page:
Get the following information
Share price
Earnings per share
P/E ratio
Other markets
Debt (including CDO’s)
Commodities
Currencies
Stock stories
Principally for investors … should they buy, sell
or hold the stock?
But also – stock stories are a window into
understanding the company. How well is it
managed, what are its challenges?
Stock trades
Selling long
Selling short
Writing about your local business
1. Get an idea
2. Conduct your research
3. Tighten your focus
4. Develop a plan for organization
5. Write the first draft
6. Revise and polish the draft
Writing about your local business
1. Get an idea
2. Conduct your research
3. Tighten your focus
4. Develop a plan for organization
5. Write the first draft
6. Revise and polish the draft