The stock market provides a place where individuals and organizations can sell, buy and trade stocks. Companies sell shares representing ownership equity in the company. Investors make money through dividend payments issued by companies and through appreciation of stock prices. You can invest in a company by purchasing different kinds of shares. The share type purchased directly affects the benefits of owning stock.
When a company issues stock, the stated value of the stock remains fixed at the nominal value. This differs from a stock's market value, which will change overtime. Once the share is offered to the public, the market dictates the performance of the stock. The market price of the stock can change throughout the day based on the supply and demand of the market for the stock and information available about the company. These factors can positively or negatively affect the market price of the stock. However, the stock’s nominal value will never change.
Nominal Share Capital
A company can only issue a limited number of shares of stock. The company’s articles of incorporation determine the specific number the company can issue. The maximum value of securities the company can legally issue is the nominal share capital. A company can, at a later date, increase the nominal share capital through a vote by the current shareholders. Increasing the number of shares raises additional capital for the company, but additional capital also can decrease the value of the current shares.
Nominal Share Price
The price of any commodity has to take into account many variables, including inflation. Nominal share price is a price without any adjustment for inflation. This is the price of the financial security in terms of current price levels. If you invest in a security for the long term, you should consider adjustments for inflation, which help determine whether the yield offered by a security will outpace inflation.
Types of Shares
Companies can offer several types of shares. Ordinary shares do not have any special rights or restrictions. Preference shares, on the other hand, offer you preferential treatment to receive dividends. A cumulative preference share offers you the right to receive a dividend in successive years if the company does not offer a dividend in the current year. Redeemable shares offer the company the option to buy back the shares at a future date.
- The National Bank: What Are Shares?
- "Principles of Finance"; Scott Besley and Eugene Brigham; 2008