Stock

Definition

1. Fixed-Interest Security

In the UK, a stock often refers to a fixed-interest security issued by the government, local authorities, or companies in fixed denominational units, like £100 each in the UK or $1000 in the USA. These securities typically have a redemption date when the par value is repaid in full. Prices on stock exchanges fluctuate based on factors like yield relative to current interest rates and the time left before redemption. See also [gilt-edged security] and [tap stock].

2. Ordinary Share

In the USA, “stock” is commonly used to refer to an ordinary share, representing partial ownership in a corporation and a fraction of the business profits or losses.

3. Stock-In-Trade

The term also refers to the total inventory held by an organization, which comprises all the goods rigged for resale. See [inventory].

4. General Collection of Assets

“Stock” can also denote a collection of assets, such as the stock of plant and machinery owned by a company.

Examples

Fixed-Interest Security Example

• UK Government Bond (Gilt): These are fixed-income securities issued by the UK government, often denoted in fixed units like £100. They offer a fixed interest rate and have a specified time until maturity.

Ordinary Share Example

• Apple Inc. Stock: Buying a share of Apple Inc. makes you a part-owner of the company, entitled to a portion of their profits (dividends) and having a say in corporate governance (voting rights).

Stock-In-Trade Example

• Retailer’s Inventory: The total stock of goods a retailer has on hand, intended for resale, which plays a crucial role in day-to-day operations and financial accounting.

General Collection of Assets Example

• Manufacturer’s Plant and Machinery: The entire collection of machines and equipment a manufacturing company owns is its stock of assets crucial for production activities.

Frequently Asked Questions

What differentiates a stock from a bond?

• Stocks represent ownership in a company and come with voting rights and dividends, while bonds are a form of debt where the issuer owes the bondholder and pays fixed interest.

How do stocks generate returns?

• Stocks generate returns through dividends (regular profit distribution) and capital gains (increase in stock price).

Can stock prices be predicted?

• Stock prices are influenced by various factors like market conditions, economic indicators, and company performance. While trends can be analyzed, predictions are inherently uncertain.

What are dividends?

• Dividends are regular payments made to shareholders out of a company’s profits, providing a return on investment.

Are stocks risky?

• Stocks can be risky as their prices fluctuate based on market conditions. However, they potentially offer high returns compared to other investment forms.

Related Terms

Yield

• The income return on an investment, such as the interest or dividends received from holding a particular security. It is usually expressed as an annual percentage rate based on the investment’s cost or market value.

Gilt-Edged Security

• High-grade bonds issued by the UK government with relatively low risk and stable returns.

Ordinary Share

• Equity securities giving shareholders a share in profits through dividends and voting rights on company matters.

Inventory

• The term used to describe the goods and materials a business holds for the ultimate goal of resale or production.

Online References

• Investopedia - What Is a Stock?
• London Stock Exchange - Understanding Bond Markets

Suggested Books for Further Studies

1. “The Intelligent Investor” by Benjamin Graham
2. “A Random Walk Down Wall Street” by Burton G. Malkiel
3. “Common Stocks and Uncommon Profits” by Philip Fisher
4. “Security Analysis” by Benjamin Graham and David L. Dodd

Accounting Basics: “Stock” Fundamentals Quiz

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