Chapter 9 - Securities and Investments
What Are "Shares"?
A share is a piece of paper.
It is evidence of part ownership in a corporation.
Here's a share in the Walt Disney Company
Here's a share in Microsoft
Why Do Businesses Sell Shares?
Businesses can be expensive to start
Entrepreneurs need lots of $$$
Selling shares in the business increases $$$ available
Entrepreneurs need interested and committed co-owners
Why Do Investors Buy Shares?
Because they might have some spare cash
Because they want to park it somewhere
Because owning a share confers rights and benefits of owning a
Right to vote at annual meetings of shareholders
Right to share in profits of business. (Typically, dividends)
Gains to value of shares (caused by the growth) Investment Banks
Advise entrepreneurs on the timing, pricing and marketing of
shares to investors.
Collect, package and distribute funds from "investors" to
Through stock brokers: sell shares to investors.
Who Own Shares?
Anyone who wants to.
Because they represent part ownership in a corporation.
But - there are risks: the business could fail
Primary Securities Market
Market for buying shares when first sold by corporations.
Corporations helped by investment bankers and securities dealers.
Determine number, price, timing and distribution method at which
to sell shares. Secondary securities market:
Subsequent sales of shares, between members of public.
Example: The Royal Bank of Canada
There are 10s of thousands of shareholders (owners) of the Royal
Bank, in Canada and around the world.
There are c. 1.4 billion shares outstanding
Approximately 5 - 10 million shares change hands every day.
Professor Bovaird owns 212 shares.
Thus: Prof Bovaird owns 212/1,400,000,000 of the Royal Bank.
Royal Bank in 2008:
Revenues: $37.5 billion
Profits or Earnings: $4.55 billion
Earnings per Share: $4.55 billion / 1.4 billion shares = $3.19 Profit or Earnings is NOT the Same as Cash
Profit is NOT the same as large chests of gold sitting in a safe.
Profit is NOT the same as cash.
A company makes a small profit every time i