Let’s talk a little bit about what the shares of stock in a company mean, hence the shares of stock. I think we all have common sense, but what I want to do in this video is a bit more tangible to really understand what you are buying when you buy part of the stock. So common sense, and it really is like that, when you buy stock or you buy shares, you are essentially becoming a partial or part-owner of the company. Part owner of the company. To contrast this with bonds, as they are often used in the same type of phrases, “Oh, I’m going to buy some stocks or bonds,” or “I deal with stocks and bonds.” Bond. Bond, you become a lender for the company. Lender for the company. So, for example, if you buy one, well, I’ll just tell you about a face value bond, assuming it’s $ 10. Let’s say it’s $ 1,000, and there are 1,000 people who do it. Each of you is lending $ 1,000 to the company and since there are 1,000 of you, you are lending $ 1 million to the company. I am not going into detail about this because it is being focused on, but it is good to note that they are very different things. Here, you own the company. Here, you are lending to the company. So just to make it a bit more tangible as to what we are doing, I have to draw a simple balance sheet for some Company X. So this company is … let me do a new color. Suppose we are working here with Company X, and we say that if we looked at the assets of Company X, and when we talk about assets, it is really the same thing that we are real What we mean in the world, or in our everyday lives, we talk about property. Things that have value. Things that are going to give us some kind of benefit in the future. A house is an asset because it gives us the benefit of being able to live in the future and protect it from cold weather and rain. Cars are assets because they give, providing us some transportation. Cash is an asset, as it can be exchanged for things we need in the future. All these … Debt to someone else is an asset because, in the future, they will pay us back. To me, a debt is a liability, which we will talk about in another, but anyway, just in a very abstract sense, it says that it is the property of Company X. Suppose they are worth $ 100 million. $ 100 million, and I’m not really going to know how that number is determined or who is determining it, or who is saying it’s 100 million, but we say that we agree that This is how much their land and their patents are and their copyright and their cash and their buildings and everything else they deserve. All things that generate future value. Now, let’s say that Company X has borrowed some money too, and maybe they have borrowed it by issuing bonds, which I won’t go into detail on. Suppose they borrowed some money, and so they collectively owe some people $ 80 million. $ 80 million. It can be a direct debit from a bank, or it can be through a bond issue. They may have issued, they may have issued a million bonds, where each of them essentially represents a loan of $ 80. I won’t go into it too much, but I think you have an idea of what the lender on my part means, but it’s a loan. There is a debt of 80 million dollars here. Suppose they have all their liabilities. There are other obligations besides debt, but for simplicity, assume that their only liability and debt is the largest. Now, what’s left for the owners? A good way to think about this is what would happen if this company was sold and paid off. So, if the company was sold and these assets can actually be sold for $ 100 million, you get $ 100 million. You have to pay the debt holders, you have to pay the loan first, so you will have 100 loans of 80, you will have $ 20 million left for the owners. I will do this in other green colors. So you would have $ 20 million left. $ 20 million is left, and is called equity, or owner’s equity. owner’s equity. It is entirely the same idea when people talk about having equity in a house. If I own a $ 300,000 house, and I still have $ 200,000 dollars, I have $ 100,000 in equity.This is completely analogous. You can see, very simply, that property. I will write it You are getting a little introduction to accounting here, but assets will always be equal to liabilities and equity. Because essentially, or you can look at it this way: If you subtract liabilities from both parties, then asset debt liabilities equal to equity. It may be a little more intuitive. Whatever is left of us is always with us which is owed to us. The same as the owners. Now, when we say that Apart-owner of a company, it means that I have a piece of this pie. This is what I personally own, equity. So, for example, if we have 2 million shares, then company X, let’s say they have 2 million shares, and we say that the equity is actually worth $ 20 million. If we believe all these numbers then how much is each share worth? Well, we have $ 20 million equity, 20 million equity divided by 2 million shares, divided by 2 million shares, which we get $ 10 equity per share. If we believe all these numbers, and we know that CompanyX has 2 million shares, then we would say that the price of each share is $ 10, and if we like these numbers and if there is a lesser share than us. Willing to sell, then we will buy it. If someone was willing to pay more than that, we would probably sell it. Just to make all of this a little more tangible, let’s look at a real example of a company to show you that I’m not doing all this. I got this from your traditional financial sources. This is actually from the filing of this anonymous company, and you will get additional bonus points if you find out what this company is, and this is their actual stock-trading activity, and I just want to draw the diagram that I drew here, the same diagram that I drew here, actually, on this company, so you can see that this actually happens in the real world, so first draw on their properties. Suppose this is Company X, and suppose that they are its assets there. It has property. Let’s go to its balance sheet. This is exactly what he reported. It’s June 30, okay, we want to take a recent date. we are learning. This is a very old financial statement, but let’s see what they are saying. We have their total assets here. 30 million, I’ll just do it in round number. $ 30 million right there, so $ 30 million. You might be curious about, “Hey, what’s all this current property business?” Those are things that are either cash or which can be turned into cash within the next year. Therefore, for example, accounts receivable. This is the money that other vendors probably owe them, that they are going to pay very soon. Inventory, these are things they probably have in the warehouse that they can sell and turn into cash very quickly. Other current assets, perhaps it is stocks or some other type of investment that they can sell and turn into cash. So they have 18 million of the current assets, these are things they can turn into cash very easily and very quickly, certainly within the next year. Then you have some property, plant, and equipment. It is like the land and buildings and machinery that I talked about, and then who knows what these other assets are. Maybe they are trademarks or patents, or who knows what they are? But all have, they have assets of $ 30 million.Now we move on to liabilities. He has some current liabilities, 16 million. Current liabilities, you just know, they are liabilities. These are things they will have to pay in cash within the next year. It may be a loan, it may be payable. They have to pay for some other vendors. Who knows what that is? But you can see it as debt on some level, maybe next year you will have to give loan. Then there is a long term loan of 5.5 million. If you combine these two, you get closer to about 22 million, so just for simplicity, I would put it here as 22 million. So this company has 22 million in liabilities. 22 million liabilities. These are their property, only to obtain all labeling rights. So what’s left for equity? We will draw it on this simple picture. We have 8 million left for equity. 8 million left for equity, and in fact, they calculated for us here. The exact number in equity is 8.39or 8.4 million, but this is a good round to show us. This is the real-world stuff we’re dealing with, and if you want to know, if you consider these numbers, if you believe that the assets of this company are actually $ 30 million, then you What should I pay for it? Okay, so you’re going to divide the total by the number of shares, and you’ll see this in some financial statements, and I won’t go into the details of the difference between basic and diluted, but the numbers are very close, so we There is no need to worry too much about it. But please tell that this company has 2.7, 2.78 million shares. So if the book value is 8.396. I mean, I wrote 8 here, how much each of them should share, how much each of them needed, and when I say book value, I mean these are their books. According to his books, the equity is valued at 8.4 million. If we actually believe that the value of equity is 8.4 million, then what should be the price of each share? Okay, we will just divide 8.4 million, we just have to divide 8.4 million, 8.4 million. It is actually 8.4. I wrote 8 for simplicity there. 2.78 million, divided by number of shares. So it’s a million, and it’s a million, and I’ll get a calculator. So, let’s see, we’re doing 8.4 million divided by 2.78 million shares over here. So, if we believe these numbers, if we believe in books, the book value of the shares is about $ 3.02 per share, so it is $ 3.02 per share, book value per share. This is why we should be willing to pay for it, or what we think is the fair value per share of this company if we believe these assets are actually $ 30 million. Now, what exactly are people paying for these shares? Okay, that, we look at this information right here, and we see that the previous trade here was for $ 2.58, so people are paying a discount on the number we calculated, so that’s only why people Paying less than that, or someone willing to sell for less than $ 3, is that someone out there, especially the seller, thinks that this company is actually, this company’s assets are actually $ 30 million Is not worth He or she thinks this company has assets under $ 30 million, and they probably think the company’s prospects are not as good. They are not products, sales are going to decrease. Who knows? Maybe the person buying it, maybe they think it’s worth $ 3 per share, and that’s why they’re willing to pay $ 2.58 for it because they think it’s going to go up. Just so that we get some other details that we see here, this quote, this quote here. This is what someone has clearly stated that they are willing to pay for a share. Asking if someone has clearly stated that they are ready to sell a share. This 52-week range is the range of prices that the shares have sold, so in the past year, these stocks sold for as little as $ 1.20, and it was a really big deal because they went up, even now , Where they are selling for $ 2.58. Average volume right here, the number of shares sold per day, exchanged per day. Market Cap, right here, you’ve probably heard that term before. This is essentially a market sense of what this number really is. We are saying that the books of this company are telling the price of this company $ 8 million, but the market cap is saying what the equity of the company is in the market’s mind, and to get that number, they are taking $ 2.58 Huh . They are taking a $ 2.58times share count. Share 2.78 million shares. If we do this, we’re going to get, let’s see, 2.58 times 2.78 exactly, well, it’s a little different than what they did. It may have been a slight round-the-clock error, but around 7 million in market cap. As I said before, the market is not paying $ 3. It is paying $ 2.58, and so the market is saying that equity, this piece here is close to 7 million, even though the books are saying that the number here is above 8 million.
What it means to buy a company’s stock.