What Is a Stock?
Slice a company into many small pieces and each piece is one share. Buy shares and you own a small part of the company.
Key takeaways
- 1A stock is a small slice of ownership in a company, and whoever holds it is a shareholder.
- 2Market cap = price per share × total shares. It's what the market thinks the whole company is worth.
- 3Your ownership = your shares ÷ total shares; dividends are paid out per share you hold.
- 4When a company becomes more valuable, each share usually does too. But share prices can also fall, and shareholders share the business risk.
Check your understanding
Get every question right to complete this lesson
1.A company is split into 1,000 shares and you hold 100. How much of the company do you own?
2.A company is worth $1 million in total and has 10,000 shares. Roughly how much is each share worth?
3.A company has 10,000 shares and you hold 500. It pays out $50,000 of profit as dividends. How much do you get?
Text version · Stock Basics, lesson 1: “What Is a Stock?”
Slice a company into many small pieces and each piece is one share. Buy shares and you own a small part of the company.
One share = a small piece of the company
A company is cut into many equal pieces, and each piece is one share. Own one piece and you're a shareholder.
Shareholders share in growth and profits
When the company makes money it may pay you a dividend; when it becomes more valuable, every share you hold is worth more too.
Shareholders share the risk too
Stocks aren't guaranteed. If the business worsens, the market cap shrinks, every share gets cheaper and dividends may be cut. If the company goes bust, the shares can become worthless.
Key takeaways
- A stock is a small slice of ownership in a company, and whoever holds it is a shareholder.
- Market cap = price per share × total shares. It's what the market thinks the whole company is worth.
- Your ownership = your shares ÷ total shares; dividends are paid out per share you hold.
- When a company becomes more valuable, each share usually does too. But share prices can also fall, and shareholders share the business risk.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Set total shares to 100 and drag "Shares you hold" to 10: how much of the company do you own?
- Switch to 1,000 shares and see how many shares you now have, and whether your ownership changed.
- Set the valuation to $1 million and total shares to 10,000, then read off the price per share (market cap ÷ total shares).
- Click "Company becomes more valuable +20%", then "Company made money · dividend", and compare how your stake's value and your dividend are worked out.
Quiz and explanations
- 1. A company is split into 1,000 shares and you hold 100. How much of the company do you own?
- Answer: 10%.100 ÷ 1,000 = 10%.
- 2. A company is worth $1 million in total and has 10,000 shares. Roughly how much is each share worth?
- Answer: $100.$1,000,000 ÷ 10,000 = $100.
- 3. A company has 10,000 shares and you hold 500. It pays out $50,000 of profit as dividends. How much do you get?
- Answer: $2,500.Each share gets $50,000 ÷ 10,000 = $5. You hold 500 shares: $5 × 500 = $2,500, exactly 5% of the total payout.
Terms in this lesson
- dividend (Dividend): Part of a company's profit paid out to shareholders according to how many shares they hold.
- market cap (Market Cap): Share price × total shares: what the market thinks the whole company is worth.
- shareholder (Shareholder): Someone who owns a company's stock and shares in its growth and dividends in proportion to their stake.
- stock (Stock / Share): A small slice of a company's ownership; owning stock makes you one of its shareholders.