This blog post explains in simple terms why companies issue stocks to raise funds and the economic significance behind it.
Stocks are issued by companies to raise capital. Companies secure operating capital through stock issuance, and the owners of these stocks—shareholders—receive a portion of the profits generated by the company’s operations. Issuing stocks not only raises capital but also provides a crucial opportunity for the market to evaluate the company’s growth potential. By issuing stocks, a company goes beyond merely securing funds; it gains continuous valuation of its worth through the stock market, enabling it to formulate future management strategies based on this assessment.
Shareholders, as owners of the company, can exercise various rights. They can participate in shareholder meetings to engage in important corporate decision-making and have the right to share in the company’s profits in the form of dividends. Shareholder rights are directly linked to the company’s growth and profitability, making it crucial to recognize the responsibilities and rights associated with stock ownership.
These stocks can be freely bought and sold in financial markets. People may choose a company’s stock based on its past performance or follow the opinions of experts who understand the company’s value well. Such choices can vary depending on the individual investor’s inclination; some invest based on the company’s growth potential from a long-term perspective, while others seek to realize profits based on short-term stock price fluctuations. These differing strategies make the diverse investment activities in the stock market even more varied.
When people engage in stock trading, the fundamental data they examine includes stock transaction tables and stock charts. Stock transaction tables display the current price, opening price, closing price, high price, low price, change from the previous day, par value, and other information, enabling an understanding of the company’s stock trading status, value, and other details. Here, ‘current price’ refers to the price at which the stock is trading in the market right now; ‘opening price’ is the price when the stock market opens; ‘closing price’ is the price at the market’s closing time, and after the market closes, the ‘current price’ is considered the ‘closing price’. The ‘high’ represents the highest price reached during the day, while the ‘low’ indicates the lowest price. The ‘change from previous day’ shows the absolute amount by which today’s current price has risen or fallen compared to yesterday’s closing price, and the ‘percentage change’ displays this as a ratio. The ‘par value’ refers to the price printed on the stock certificate when it was first listed on the stock market. Additionally, the number of listed shares, market capitalization, and PER are displayed. The number of listed shares represents the total number of shares of the company listed on the securities market. Multiplying this number of listed shares by the current price yields the ‘market capitalization’. ‘PER’ (Price-Earnings Ratio) is an indicator showing the market’s valuation of the stock price level. Generally, a low PER suggests the stock is relatively undervalued in the market, while a high PER indicates it is overvalued.
Stock charts provide a visual representation of stock price movements over a specific period. Charts display indicators like moving averages and trading volume. These stock charts are created based on various time frames, such as daily, 5-day, or 60-day periods. The ‘moving average line’ on a stock chart is a line created by averaging the stock price over a specific period. It is a crucial indicator that helps easily grasp the trend of stock prices. Additionally, the ‘trading volume’ displayed on a stock chart shows the quantity of shares traded. Changes in trading volume observable on the chart are sometimes used to predict stock price movements. While this information serves as a useful tool for investors, stock trading always involves risk, necessitating a cautious approach.
Stock trading tables and stock charts assist stock investors. However, investors must consider not only these materials but also comprehensively evaluate the company’s management status, overall economic trends, and global market movements. The stock market is influenced by various factors, and unexpected variables can significantly impact stock prices. Therefore, stock trading requires caution because the price of a stock believed to rise could fall due to unforeseen variables. Thorough prior research and analysis regarding stock investments, along with risk management prepared for market volatility, are essential.
Furthermore, it is crucial to invest from a long-term perspective, free from emotional sway. Fixating on short-term gains makes one susceptible to being swayed by stock market fluctuations, potentially leading to losses. Therefore, it is advisable for investors to establish a strategy aligned with their financial goals and investment temperament and to invest consistently according to that strategy.
