Stocks and Shares: Concepts

Those people who are interested in dealing with stock and shares must have knowledge about the given below terms, which are highly used in the share market-

1. Stock Capital 

To run a company, a certain amount of money is needed. This certain amount of money is called Stock Capital. One must have a strong understanding of it. 

For Example- If a Pvt Ltd. Company has issued 2000 shares at a price of rupees 500 / share, the capital stock value would be rupees 1000000.

Types of Capital Stocks

1. Common Stock- It gives Share holders or Stock holders more right to vote over a company’s decision

2. Preferred Stock- These stocks are like Bonds and Dividend

2. Stock or Share 

The total Stock Capital is divided into small parts or units. These small units are called Shares or Stocks.

The company provides a share certificate for showing the number of shares of a person or the value of each share.

The person who holds a share is called a shareholder or stockholder.

For Example- Ritu has invested in stocks, which means she has a portfolio of different company shares.
On the other hand, share means a single unit of ownership in a company.

Types of Stocks

There are mainly two types of Stocks –

1. Common Stocks
2. Preferred Stocks

These stocks are further divided into the following categories-

• Growth Stocks
• Income Stocks
• Value Stocks
• Blue Chip Stocks

Types of Shares

A company can issue various types of share based on their rights but mainly are two types of shares-

1. Common Shares : Examples can be- J P Morgan Chase, Microsoft Corporation, Colgate Palmolive

2. Preference Shares : Preferred shares can be further classified as ordinary or common stocks of a company. For Example-Participatory and Non-participatory shares, Convertible and Non-convertible shares, Cumulative or Non-cumulative shares etc. 

3. Nominal Value or Face Value 

Face value is the value of a stock that is printed on the share certificate.

Examples- Face Value of a Bond Paper, Any Item price in a Supermarket is known as its face or nominal value, in the same way, the Total amount deposited in any account of a Bank is its face value.

4. Market Value 

In an open market, the shares or stocks of different companies are bought and sold through brokers at different stock exchanges. Market value is identified in three ways –

i) Market value < Face value, when it is at discount.

ii) Market value = Face value

iii) Market value > Face value, when it is at a premium.

Through an example, we will understand market value.

Ex: If an Rs. 1000 share is quoted at a discount of 100, the market value of the stock = (1000 – 100) = 900

If an rs. 1000 shares is quoted at a premium of 100, the market value of the stock = (1000 + 100) = 1100

For Example- Avinash wants to sell his 3 BHK Flat in 90 Lacs, But he didn’t get any buyer who could purchase his flat on or above 90 Lacs. His flat is situated in the prime location of City and as per the circle rate of that area 3 BHK flats have min value of 90 lac and it would have a 1.5 cr. value in near future. But the Market value of his flat will be considered only 90 Lacs. 

5. Dividend 

It is an annual profit that is distributed among the shareholders. The dividend is distributed annually as per the share. It is always paid on the face value of the share, not on the market value.

For Example- Dabur Pvt. Ltd. announced 10 rupees per share dividend for their shareholders. Then an investor, who has 100 shares of Dabur company will receive 1000 rupees as a dividend. 

6. Brokerage 

It is a charge which is deducted by the broker. It is deducted in two ways –

i) When stock is sold, the brokerage is subtracted from the selling price of the stock or share.

ii) When a stock is bought, the brokerage is added to the cost price of the stock or share. 

Note : 

1. Dividend is paid annually on the face value of a share. 

2. The face value of a share is fixed ( same). It is not changed from time to time. 

3. The market value of a share changes from time to time. 

For Example- When any investor don’t have sufficient knowledge about the share market and still wants to grow his money through the share market, then such an investor or individual takes the service of such agencies or people who have expertise in the share market and they charge some commission for it is known as brokerage.

‘Stocks and Shares’ is an important topic of the Quantitative Aptitude section for all competitive examinations. To solve the questions of ‘Stocks and Shares’, you must know the terms and formulas of ‘Stocks and Shares’. Practicing questions within the time limit becomes important for the candidates.

In the following article, we have discussed the important terms, concepts, formulas, and practice questions related to ‘Stocks and Shares’. So try and practice the following questions about stocks and shares to improve your score in the exams.