The big ideaA stock is a slice of a company. Owners share its earnings, and the price moves.
How it works
A stock is a slice of a company, also called a share. Sam cut Lemon Co. into ten equal slices worth 20 coins each.
People who own slices are called shareholders. Sam sold six slices and kept four.
A stock gives two things: a share of the earnings (a payout), and a price that moves with what people expect.
Either can be good one year and weak the next, and neither is promised.
Each owner's payout from 30 coins of earnings.What one slice sold for.
Example 1: Selling slices
Sam sells 6 slices at 20 coins each.
6 × 20 = 120.
That is enough coins for the second stand.
Example 2: A payout
Lemon Co. earned 30 coins, shared by 10 slices.
30 ÷ 10 = 3 coins a slice.
Ana owns 3 slices, so she gets 3 × 3 = 9 coins.
Example 3: The price goes up
A slice now sells for 24 coins.
Maya owns 2 slices: 2 × 24 = 48.
She paid 2 × 20 = 40, so they are worth 8 more: 48 − 40 = 8.
Example 4: The price falls
After a rainy summer a slice sells for 16.
Maya's 2 slices: 2 × 16 = 32.
32 is less than the 40 she paid, but nobody made a mistake: a price follows what people expect.
Words to know
stock
A slice of a company, also called a share.
shareholder
A person who owns slices of a company.
payout
Earnings shared with the owners.
earnings
The coins a company made.
Watch out
A stock is a slice of a company, not a loan. A loan is a bond.
When Maya sells a slice to Ana, the company is not part of the swap.
A lower price does not mean someone did wrong.
A payout and a price are never promised.
Try it
30 coins of earnings are shared by 10 slices. How much does one slice get?
Maya owns 2 slices at a payout of 3 each. How much does she get?
A slice is worth 24. How much are 2 slices worth?
Is a stock a loan or a slice?
Answers: 1. 3 · 2. 6 · 3. 48 · 4. A slice of a company
Try at homeAsk a grown-up to name a company near you and say what it sells. Remember, a stock is a slice of a company.
For grown-upsAsk a grown-up to name a company near you and say what it sells. Remember: a stock is a slice of a company. Lemon Co. is made up, and nothing here is advice about buying anything.
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