Common shares are shares available for purchase on the stock market, including those held by institutional investors and company officials (insiders) that have ownership in a corporation. To calculate common stock, there can be found a specific accounting formula: the number of issued shares minus treasury stocks equals to the number of outstanding shares that represent common stock.
Common stock can be found in a balance sheet of an organization. This is an indicator that tells how much the investor collectively receives from the ownership of shares by buying them at one time and selling them at another. Common stock can be expressed as a percentage and shows the effectiveness of investments in specific securities. It can take both positive and negative value; in the case of negative value, the investor fixes a loss on their investments. There is a vast number of factors that can influence the level of profitability of shares. However, these factors come down to two aspects: the amount of dividends; growth prospects for stocks.
The cost of common stock is a common shareholders’ required rate of return. Companies can raise financial resources through common equity; they can either issue new common stock or keep shares and reinvest previous earnings from the capital. The primary income of the investor on the common shares is the growth of the exchange rate value of the shares. If the company is doing well, its revenue and profits are growing. Thus, the company is developing, paying dividends, which are also growing, this activity has a positive effect on the stock price. The investor, seeing this state of affairs and evaluating the prospects, can buy common shares of the company. If the company continues to do well, the share price rises, then the investor can sell the shares at a higher price and make a profit. The second source of investment income is dividends, which is a part of the profit that the company pays to shareholders. Both sources of income represent common equity that can be evaluated via different formulas.