business and economics reporting professor lou ureneck
TRANSCRIPT
Business and Economics Reporting
Professor Lou Ureneck
Stocks and stock markets
• 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 corporationsPrivately held corporations.
For-profit public corporationsThe 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.
LinkUkraine 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.
• Price per share• Earnings per share
• Price per share/ earnings per shareThis is an expression of how much we are willing
to pay for each dollar (or grivna) of profit
A closer look – three ratios
An example
Microsoft
http://finance.yahoo.com/q?s=MSFT&ql=0.
Today’s price per shareEarnings 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 stocksOpen price, closing price, change in price.
http://www.nyse.com/
IndexesBaskets of stocks.Dow Jones IndustrialsStandard and Poor’s 500
An exercise
Go to Yahoo finance page:
Get the following information
Share priceEarnings per shareP/E ratio
Other markets
Debt (including CDO’s)CommoditiesCurrencies
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 idea2. Conduct your research3. Tighten your focus4. Develop a plan for organization5. Write the first draft6. Revise and polish the draft
Writing about your local business
1. Get an idea2. Conduct your research3. Tighten your focus4. Develop a plan for organization5. Write the first draft6. Revise and polish the draft