Definition
Shares, in financial terms, represent ownership units in a company, mutual fund, or other entities. The number of shares a person owns determines their proportion of the corporation’s assets and earnings. Ownership in the company is determined by the number of shares a person owns relative to the total number of outstanding shares.
Phonetic
The phonetic spelling of “Shares” is /ʃɛərz/.
Key Takeaways
- Shares Represent Ownership – Owning a share is essentially owning a portion of a company. shareholders are entitled to a portion of the company’s assets and earnings proportional to the amount of shares owned.
- Shares Offer Potential for Financial Profits – If the company is profitable, the value of its shares could increase over time. This can lead to capital appreciation for the shareholders. Some companies also pay dividends to their shareholders out of their profits.
- Risks Associated with Share Ownership – The value of shares can go down as well as up, depending on the performance of the company and broader market conditions. It is possible to lose all the money invested in shares if the company goes bankrupt.
Importance
Shares play a critical role in finance and business as they represent ownership in a corporation, giving the holder of the share a claim on part of the company’s assets and earnings. They are a key foundation of any stock portfolio and are bought and sold on public exchanges. Each share symbolizes a fraction of a stake in the company’s operations, profits, and decision-making process, depending on the number of shares one owns. The more shares an investor owns, the larger the proportion of the profits, and prospective capital gains they will receive. Therefore, shares are significant in helping determine the wealth and influence of an investor within a corporation.
Explanation
Shares represent units of ownership interest in a corporation or financial asset. They serve as a means for companies to raise capital for various purposes such as to fund new projects, clear debts or to maintain ongoing operations. When a company sells shares, they essentially sell a part of their ownership to public or private investors, which not only provides the company with necessary funds but also distributes the risks associated with the business among a larger pool of investors. From the investor’s perspective, ownership of shares translates to having a financial stake in the company’s performance. The shareholder might then benefit from the company’s profits in the form of dividends, or from an increment in the price of shares which can be sold at a profit. In addition, shareholders, based on the number of shares they own, may also have voting rights in company decisions. Therefore, shares serve as an instrument by which investors can participate in the company’s growth, earn profits, and potentially influence its direction.
Examples
1. Apple Inc. – As a publicly traded company on the NASDAQ, Apple Inc. has shares available for purchase. These shares represent partial ownership of the company and the owner of the shares often has the right to vote on corporate matters. The value of these shares fluctuates based on Apple’s current market performance, business decisions, product releases, and various other factors.2. Berkshire Hathaway – This is a multinational conglomerate holding company that owns a multitude of other companies. It’s headed by renowned investor Warren Buffett. The company has two types of shares – Class A and Class B. The Class A shares are among the most expensive stocks in the world, primarily because they’ve never had a stock split.3. Facebook – When Facebook initially went public on 18th May 2012, they offered more than 400 million shares to the general public under the ticker symbol “FB” on NASDAQ. The public, by buying these shares, is essentially buying a small piece of Facebook. The price of the shares has significantly increased since the initial public offering, providing substantial returns to early investors.
Frequently Asked Questions(FAQ)
What are shares?
Shares are units of ownership interest in a corporation or financial asset, which provide for an equal distribution in any profits, if any are declared, in the form of dividends.
What are the types of shares?
There are two main types of shares: common shares and preferred shares. Common shares usually entitle the shareholder to vote at shareholders’ meetings and to receive dividends. Preferred shares generally do not have voting rights, but have a higher claim on assets and earnings.
How can I buy shares?
Buying shares typically involves setting up a brokerage account, funding that account, and then placing an order to buy shares. The shares will then be held in your account with the broker.
What are dividends in relation to shares?
A dividend is a payment a corporation may choose to distribute to its shareholders out of its profits. If a company has issued shares, the owners of these shares may receive dividends.
What does it mean when a share is undervalued or overvalued?
An undervalued share is one that is selling for less than its intrinsic or real value, often due to market overreaction or market inefficiencies. Conversely, an overvalued share is one that is selling for more than its intrinsic or real value, often due to market overreaction or over-speculation.
How are shares traded?
Shares are primarily traded on stock exchanges, such as the New York Stock Exchange or the NASDAQ. They can be traded through brokers, who act as intermediaries between buyers and sellers.
What determines the price of a share?
The price of a share is determined by supply and demand forces in the market. It’s influenced by various factors such as company financials, market sentiment, industry trends, and global economic factors.
What is a shareholder?
A shareholder is an individual or entity that owns shares in a corporation, thus having a claim on part of the corporation’s assets and earnings.
What is the risk of purchasing shares?
The main risk of purchasing shares is the potential to lose your investment. If the company’s performance declines or it goes bankrupt, the value of your shares could decrease or become worthless. It’s important to remember that all investments involve risks.
Do I need to have a lot of money to buy shares?
No, you don’t always need a lot of money to buy shares. Many online brokers allow you to buy fractional shares, which means you can buy a portion of a share instead of the whole share, allowing you to start investing with a small amount of money.
Related Finance Terms
- Dividends
- Equity
- Stock Exchange
- Shareholder
- Capital Gain
Sources for More Information
