Common stock

Common stock refers to a type of equity that represents ownership in a company and grants shareholders the right to participate in the company's profits (often through dividends) and to vote at shareholder meetings. Holders of common stock have the right to be involved in decisions about important matters concerning the company, such as electing board members or approving mergers and acquisitions. Common stock also has the potential to appreciate in value, which can lead to capital gains. However, in the event of liquidation, common stockholders have lower priority compared to preferred stockholders and creditors when it comes to the distribution of remaining assets.

Related terms

Term	Definition
Company valuation	Company valuation is the process of determining the economic value of a company or its assets. This process involves analyzing various factors such as financial statements, market conditions, future earnings, competition, and economic trends. The goal of valuation is to provide an accurate estimate of a company's value, which can be used in transactions such as mergers and acquisitions, company sales, obtaining financing, or internal planning. Valuation methods may include comparisons with similar companies, discounting future cash flows (DCF), or evaluating based on the company’s assets and liabilities.
Corporate bond	A corporate bond is a security issued by a company to raise capital from investors. When purchasing a corporate bond, the investor is lending money to the company, which must be repaid within a specified period, with the company committing to regularly pay interest (coupons) throughout the duration of the bond. Corporate bonds can have various interest rates and maturities, and can be secured or unsecured, which affects their risk and return. Investors earn regular income from interest and may profit from a potential increase in the bond's value if its market price rises.
Credit risk	Credit risk is the risk that a borrower will not be able to meet their obligations to the lender on time or at all, which may lead to financial losses. This risk can arise from various types of loans and credit, such as corporate bonds, personal loans, or mortgages. Credit risk can be influenced by factors including the financial stability of the borrower, their ability to generate income, and external economic conditions. To mitigate credit risk, lenders often carefully assess the borrower's creditworthiness. As compensation for the increased risk, they may require collateral or higher interest rates.
Dividend	A dividend is a portion of a company's profit that is distributed among its shareholders. Dividends are paid regularly, typically quarterly or annually, and can take the form of cash (cash dividend) or additional shares (stock dividend). A dividend is a way for companies to reward their shareholders for their investments and provide them with a steady income. The amount of the dividend can vary depending on the company's profitability and dividend policy.
Earn-out	An earn-out is an agreed-upon arrangement in a merger or acquisition where the seller receives additional payments from the buyer based on the future performance or results of the acquired company. These payments are often tied to achieving specific financial or operational goals over a set period following the completion of the transaction. The earn-out arrangement helps balance the risk between the seller and the buyer, and it also motivates the seller to continue successfully managing the business post-acquisition.