Stocks and Shares 101
We are going back to basics, looking at some fundamental concepts from the stock market.
What’s in it for the companies?
A company wishing to expand and grow may need extra cash to achieve their goals. What options do they have? The company could get a loan from a bank with potentially high interest rates, however, another option would be to sell a part of their company in the form of shares. Selling shares enables a company to raise money in exchange for a stake in the company.
What’s in it for the shareholders?
The shareholder has the potential to benefit in two main ways. Firstly, by speculating that the share price will rise. If a shareholder pays a certain price for a share, and then share price increases, the shareholder could sell the share at a later date for a higher price, thus making a profit. Secondly, by receiving dividend payments.
What does “dividends” mean?
Companies often pay dividend payments to their shareholders. This is a fixed sum off money paid to a shareholder, generally every quarter. Shareholders can, therefore, make a passive income.
So, when I hear about shares, I often hear the FTSE 100 mentioned. What’s the FTSE100?
The FTSE100 consists of the 100 largest companies by market capitalisation listed on the London stock exchange. It's not a fixed group of 100 companies. Companies increase and decrease in terms of market capitalisation and therefore the top 100 leader board changes, much in the same ways as the premier league or the music charts.
What does market capitalisation (also known as market cap) mean?
Market capitalisation is the value of all the shares of a company combined. If a company has 100 shares issued and the price is £30 each, the market cap would be £3,000.
The market cap is, therefore, the price of buying all the shares in a company.