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.

Look Out!
It\'s important to be able to distinguish between authorized, issued, outstanding and Treasury stock.

Common Stock Benefits
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