Business Basics: Stocks and Shares
Stocks and shares are right at the heart of the world of finance and business. But what exactly do they mean, and what’s the difference between them?
The word “share” has a very simple meaning in everyday English. When you share a pizza equally with three friends, you each get a 25% share of the pizza. In the same way, your share of a company is the part of it that you own, after it has been cut up into small (maybe very small) pieces.
The word “stock” is a little more complicated. A company’s stock is its value to its owners. This is calculated by adding up all the company’s assets and taking away all its liabilities. This value is called the company’s equity, but when we talk about buying, selling, and owning part of that equity, we usually refer to it as the company’s stock.
When you invest money in a company, you’re actually buying part of that company’s stock. For example, if the company’s stock is divided into 1000 shares (i.e. pieces of equal size), and you buy 10 of those shares, you own 1% of the company’s stock. We can also say you own a 1% stake in the company.
When you buy shares in a company’s stock, you receive a certificate to prove that you’re really the owner — you can’t simply take your part of the company home with you! These certificates are called “stock certificates” or “share certificates,” with no difference in meaning. These names are usually shortened to simply “stocks” and “shares.”
So in practice, there’s no important difference between stocks and shares. They both refer to the same certificates, or to the ownership rights that those certificates represent.
There is just one tiny difference in the way we use the two words. We usually talk about “owning shares in” a particular company, but it sounds unnatural to use “stocks” in this way. We usually use “stocks” with a more general meaning. For example, if you own shares in several companies, we often simply say that you own stocks.
But the simple answer is that they’re two words for exactly the same thing.
(Photo Credit: Dick Thomas Johnson. https://www.flickr.com/photos/31029865@N06/1526969885)
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Originally published at www.GetNewsmart.com