Video Transcript: What it means to own shares in a company's stock.

Hi, welcome back. In this video, we're going to discuss what it means to own a  company stock. Okay, so so as you can see, shares of stock. You know, you're  you're an owner of you're actually taking equity share into the company, right?  You're actually going to own a piece of the company, right? Depending on how  many shares you own, is allocated to the percentage of your ownership, right?  So, so if you purchase shares of a company stock, you are now a partial owner  

of that company, potentially with voting rights, right? So now let's on the flip side  look at bonds, right? Those are debt, excuse me, debt instruments, right? So, so bonds will be distributed or sold, right, by corporations, right? They're trying to  raise capital to maybe fund growth or research and development. Or bonds can  be sold by the government, right? Local government, state government, federal  government, right? They can sell bonds, right, to fund their operations, right? So  let's look at this example of company X, right? So let's say we now own 2 million shares of company X, right? So now our assets are at $100 million Let's say that the price per share is 50 bucks. So now our assets are 50 million or $100 million right? Now on the other side, so you know we can see here that above below  company X and the 2 million shares, that's our snapshot of our balance sheet,  right? So don't forget on a balance sheet that the left side of the sheet is your  assets, right? Whatever are your assets right? They could be plant, property,  equipment, cash, inventory, receivables, anything, right? Anything that's that you know that has a value that you own that is your assets. Those are your assets,  right? On the other side of the of the balance sheet, it'll be comprised of  liabilities and owner's equity. So liabilities are what you owe, right? What are  your obligations to pay? Notes payable, long-term payables, right? Any kind of  bond instruments or or notes payable, anything like that are known as liabilities,  right? Now, now equity is owner's equity is what is left over from your assets  after you subtract out your liabilities, right? So here we can see that assets  equal liabilities plus equity. So if we notice we have the $80 million in debt, right,  plus the 20 million in owner's equity. Okay, so now we have. So that's got to be  equal, right? The balance sheet, both sides, debt plus equity has always always  has to equal assets, right? Or we can say assets minus liabilities equal equity.  But either way, both sides have to balance. It's called the balance sheet, right?  So now we have we have issued out 2 million shares, right? And then we've also issued out $80 million in bonds, right? So we are financed. We have 20% equity, right? 80% debt, right? In our asset flow, right? So we can see that we have 20  million in equity divided by the 2 million shares, right? So, so our book value on  our potential stock price, right? Our book value, which is the book value of a  firm, is the owner's equity, right? What is our equity? And an equity is a stock. A  stock is an equity. It's an ownership share. It's an ownership position on net $20  million I want a piece of that $20 million right? I want to be cash flowed out of  that $20 million I want to receive dividends. I want to receive a payment for  investing in your equity, right? For buying a piece of your equity, right? So now 

we have 20 million dollars in equity, right? And there are 2 million shares  outstanding for this company, for company X, right? So if we take our 20 million  dollars in equity and we divide that by the 2 million shares outstanding, we can  we can calculate our share price, our price per share, right? So our book value,  our book value is based on the book on our balance sheet. This is our exact  equity, right? Because it's our assets minus our debt that gives us our equity. So  that. Is known as your book value of your firm. Your owner's equity is the book  value, right? So now we will take our 20 million in equity, right, which is our book value, and and we will subtract out, we will divide out the 2 million shares, right?  So that will give us a $10 price per share, right? Now you'll also have to notice  that the book value will differ from the market value. We the market value is  what does the stock market value your shares at, right? So you can trade above book value or below book value, and a lot of times investors will make decisions  on whether they want to buy the stock or not. Is if the share price in the market  is below the share price in the book, right? So they can find value in the markets in the stock market if your if your market value is less than the book value, right,  and and and the company is not in a lot of turmoil and and and it's and it's  moving along steadily, you can find a buying opportunity by doing a simple  calculation of finding the price per share in the book from the balance sheet from owner's equity, right? In a simple mathematical equation, right? The equity  divided by the shares outstanding will give you the share price, right? So notice  our 20 million divided by the 2 million gives us our $10, right? So let's say in the  market, shares of company X are trading at $8. In the value of the market is $8  Well, we are cash flowing fine, right? We have 20 million in equity, right? Our  debt is under control. Our assets can pay down the debt. We're good there. So  now, if I can find in the market a discounted price, then to the book value, let's  say the $8 price, that would give me a buy signal as a potential investor. So let's  take a look here, right? So let's talk about book versus market. Okay. So here  we have listed out some some some stock information, right? And we're looking  here at a live balance sheet for company X, let's say, right, and below we'll see  the number of shares outstanding for company X, right? So we have in total  assets. If you'll see, total assets $30 or 30,178,000 So let's just round down for  simplicity reasons, and let's put our total assets in our asset column at 30  million. Right. So we have 30 million on total assets. So we'll put our total assets in the asset column, right. So now we can move down, right, and we can find  our total liabilities, right. Our total liabilities. Okay. So you can see how this is  segmented, right. So we have total current liabilities, and we also have long term debt, right? So, so let's add up our entire debt portion, right? So it would  calculate out approximately to $22 million in liabilities, right? So our liabilities are 22 million. So now, if we subtract out the 22 million from the 30 million, our  owner's equity will give us a million. So look, it's pretty, it's it's it's right on, right?  So you'll notice stockholders' equity is 8.3 million, 8.4 million. But we'll round 

down for simplicity, right? Just to to take advantage of that, right? So now, if  you'll look in the upper left-hand corner, this is Company X last day traded in the  open market. Okay, and you can see this that the sales price, the sale price of  this equity of this stock, was $2.58 cents on the close. Right on the close of  march 11, it was $2.58 cents. But now let's go look and see from our balance  sheet what the book value of our equity is, right per share. So now you'll see  below our balance sheet we are going to have we are going to have our shares  outstanding of common stock. So the total amount of shares in the marketplace, right, are our shares outstanding, right? So, so company X has 2.78 million  shares in the market to be traded. Bought and sold, right? So that's it. They  have 2.78 million shares in the market, and that's all the shares they have at this moment to trade, buy, and sell, right? So as we subtract out, so let's say the real number of our equity, right? So let's let's round up. Let's let's do the calculation.  So we just put 8 million here for simplicity reasons, but to get a little more exact  book value price, let's use the book value to its its you know next place rounded. So so we're going to go 8.4 million, 8.4 million in equity, right? So you can see  stockholder equity 8.4 million, right? So 8.4 million. So we're going to divide that. Remember how we did this equation, right? We took the equity and we divided  by the number of shares outstanding to give us our $10 share price, right? We'll  do the same thing here. We have $8.4 million in owners' equity, and we'll divide  that $8.4 million in owner's equity by the 2.78 million shares outstanding. So our  book value on a price per share basis is $3.02 Now hold on. Let's look back up  top on the left hand side, and we can see that the last trade made for Company  X was at $2.58 cents. Okay, so now I can look at that as a potential investor. I  can say, okay, look, they're doing pretty strong, right? We our debt-to-equity ratio is pretty strong. You know, our assets can pay down current liabilities, so we're  pretty well positioned, and we're you know we're not so overly leveraged that it's going to be a threat in the near term. So we can see that this is a is a very  fundamentally sound an organization. So they're running their operations  smoothly, right? They have you know they have price earnings is strong, right?  So they're they're still they're earning, you know, they're in taking a lot of  earnings, right? Their revenues are strong, right? So their price to their earnings  is relatively low, right? At 8.68, right? So you want it for another discussion, but a P/E ratio, you know, you want to shoot for around 15. So it's a little undervalued  here, right? And you can see another indicator if the stock price is undervalued,  right? So our market cap-if you look-the market cap is 7.06 million, right? So  how do we find market cap? How do we define that? What's the mathematical  equation to find market cap? It's really, really simple, right? So you want to look  at the total shares outstanding, right? So our total shares outstanding,  remember, is the the 2.78 million. So let's take the 2.78 million, and we will  multiply that by the 2.58 the last quoted trade price, right? So, so to get the  market cap, we'll multiply the 2.58 by the 2.78, right? And that'll give us our total 

market cap, right? So, the total market cap is what the market values our total  owner's equity at. So, this is a comparison tool. Notice that the market cap at  7.06 is less than our book value of equity at 8.4 million. Right. Therefore, our  stock price in the market is cheaper than our book value. As an investor, as a  trader, or somebody that is a business owner, I would like to say that I would  say, looking at this, that the stock price is undervalued. It's below the market.  There's no reason for it to be below the market. So, as a trader investor, I would  potentially buy this stock, and I would look for it to get back up to $3 Right. So,  this is undervalued, and this is a potential buy opportunity, but you can see that  the market cap at 7.06 is less than the book value at 8.4. So this will allow us a  little bit of room to make a profit on a trade or or invest in the company as an  investor because we can see that the market price relative to the book price is  less. So when the market price is less than the book price of an equity, that'll  that will trigger a trade opportunity if you're comfortable with the company. So as you can see, this is an example of of how to identify a good opportunity as an  investor, and also we can break down the components of valuing a company  through its balance sheet.