Stocks Introduction; company shares

Company shares

The owner of tire shoppe realised that it would take a while for him to be able to cash in from the sale of his business. So he decided to split the value of the business into parts or shares through an underwriter which does that job, and came up with 100 parts of it or 100 shares outstanding, which brings us down to $1000 per piece or $1000 per share. ($100,000 / 100 shares = $1,000 per share).

Stocks are proof that you own a part of the business issued in certificates. It can be traded at a profit or loss since the price per share of a company fluctuates depending on the current supply and demand for that stock. Now back to the tire shoppe, as you noticed on the illustration there were only 100 shares available posted on the sign, that is the number of available shares that makes up the total value of the company. They are not infinite, and there is no such thing as unlimited number of shares because you can't sell more than 100% of anything otherwise those shares you bought would be worthless. It is important to look at these figures since it is the reason why prices of the stocks you own changes in value.

Basically, supply and demand is the reason why stock prices change in value overtime, if we take a closer look at the result from that company's public offering of its stocks, the total demand for the tire shoppes stock is much more than the available supply which is just 100. The first guy ordered just a single share, right next to him is interested in acquiring 40 shares, further down, another ordered 10 and then 50 shares for the guy who's got the most cash and then 15 shares for that last guy to the right. All in all there were 116 buy orders for tire shoppes stocks. But since there were only a limited number of Tire shoppes shares, the result would be an increase of per share value as the price would prop up in order to facilitate the sale of 100 shares to the highest bidders. The opposite thing happens if that positive buy orders decrease and would trigger a drop in per share value which we will cover later on other sections.

Company shares

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