What a share really is
A share is a unit of ownership in a company. Own one share of a business with 100 million shares outstanding and you own one hundred-millionth of its future profits, its assets, and its liabilities.
That ownership is why prices move. A share price is the market's running estimate of what those future profits are worth today. When the estimate changes — because of earnings, interest rates, competition, or sentiment — the price changes with it.
Two numbers describe the size of a company:
Share price: the cost of one unit of ownership. On its own it says nothing about whether a company is big or cheap.
Market capitalisation: share price multiplied by shares outstanding. This is the price tag on the whole business, and it is the number to compare across companies.
A $12 stock is not cheaper than a $600 stock. Comparing prices without comparing market caps and earnings is the single most common beginner error.
1. Company A trades at $15 and Company B at $450. Which is the larger business?
2. What does a share price most directly represent?
3. Market capitalisation is calculated as:
Put this into practice with paper money in the sandbox.
Open my sandbox