What is common stock, and what are its different types?

What’s common stock?

Common stock is a type of investment that shows ownership in a company. People who own common stock vote for the board of directors and decide how the company will run. Most of the time, this type of equity ownership gives higher rates of return over time.

In the case of liquidation, however, common shareholders can only claim a company’s assets after bondholders, preferred shareholders, and other creditors have been paid in full.

In the stockholder’s equity section of a company’s balance sheet, the amount of common stock is shown.


1. Common stock is a type of investment that shows ownership in a company.

2. After creditors, bondholders, and preferred stockholders have been paid in a liquidation, the remaining assets are distributed to the common stockholders.

3.On the market, people buy and sell different kinds of stocks. When compared to their true worth, value stocks are more affordable. Growth stocks are shares of companies whose value tends to go up because their earnings are going up.

4. Investors should spread their money out among different securities based on how much risk they are willing to take.

Also Read:- Why do investors choose to get into mutual funds through NFO?

How to Know About Common Stock

Common stock is a claim on a company’s profits now and in the future. Shareholders are therefore considered to be part-owners of a company. This doesn’t mean that shareholders can walk into a company’s office and claim ownership of some of the chairs, desks, or computers.

The corporation, which is a legal entity, owns these things. Instead, the shareholders own this claim. Investors and traders can buy and sell common stock on stock exchanges. If you own common stock, you might be able to get dividends.

In 1602, the Dutch East India Company created the first common stock. The Amsterdam Stock Exchange was where it was sold. Stock exchanges like the London Stock Exchange and the Tokyo Stock Exchange have listed tens of thousands of companies worldwide during the past 400 years.

NYSE and NASDAQ trade larger U.S. stocks. The NYSE was the largest stock exchange by market cap in Q1 2022 with 7,417 listings and $53 trillion in market cap.

Unlisted companies are tiny companies that cannot meet an exchange’s listing standards. Stocks that aren’t on a stock exchange are

Things to think about

Corporate Bankruptcy

In a bankruptcy, common investors receive their money after creditors, bondholders, and preferred shareholders. Common stock is riskier than debt and preference shares. Common shares outperform bonds and preference shares long term. Many corporations issue all three securities.

Next example, Wells Fargo & Company has various bonds accessible on the secondary market. It has common stock, Series L (NYSE: WFC-L) preferred stock, and (NYSE: WFC).


An initial public offering is required to issue stock (IPO). A corporation seeking financing can expand with an IPO. A corporation must cooperate with an underwriting investment banking firm to decide on stock type and price before going public. The public can buy fresh stock on the secondary market after the IPO.

People who buy common stock

Investors should prioritize stocks. They are riskier than CDs, preferred stock, and bonds. Risk increases return. Stocks outperform other assets long-term but are more volatile short-term.

Stocks also vary. Growth stocks are corporations that tend to expand in value due to increased earnings. Value stocks are companies lower in price with respect to their fundamentals. Value stocks pay dividends. Market capitalization tells us whether a stock is big, medium, or small. Large-cap stocks are more liquid and often represent a steady company. Due to the fact that small-cap companies tend to be startups with big growth ambitions, their stocks tend to be more volatile than those of larger corporations.

Formula for Common Stock

The common stock formula is represented as follows,

Common Stock (Outstanding Shares) = Number of Issued Shares – Treasury Stocks

  • Outstanding shares:- The number of outstanding shares is the number of shares that company owners can use to own a piece of the business. These people can be insiders or outsiders of the company.
  • Treasury Shares – Treasury Shares are the shares that the company bought back.
  • Issued Shares – Out of the total number of authorized shares, the number of issued shares is the total number of shares that the company has given out.

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