Stocks and Mutual Funds - Types of Stocks
- Authorized stock
- When a corporation is formed, it authorizes a fixed number of shares of stock in the company.
- The stock is assigned a "par" value that is quite low, such as 10 cents or a dollar per share.
- There is no correlation between the par value of a stock and its market value.
Issued stock
- A corporation typically issues only a fraction of the number of shares that were authorized at the time it was created.
- This permits the corporation to issue new stock as needed.
Outstanding stock
- The number of shares actually trading in the market
- Outstanding stock is equal to the amount of issued stock minus any Treasury stock.
Treasury stock
- Any shares of issued stock that the corporation repurchases; a company might "buy back" its own shares for any of these reasons:
- The market price of the stock is depressed, and the company can repurchase the shares at an effective discount.
- Repurchasing the shares will increase the earnings per share since there will be fewer outstanding shares.
- The Treasury shares can be used instead of cash to make required employee stock options or retirement plan contributions.
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It's important to be able to distinguish between authorized, issued, outstanding and Treasury stock. |
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