# Common stock examples and types

Common stock examples are the types of stock that companies sell to individuals. These sales are done in order to raise funds for the company. By so doing, the company gives individuals the right to vote and some of the profits gained by the company.

## Common stock meaning

The term “common stock” is a type of share that is issued by a company to give the owner of the share the rights of ownership in the company. One of the benefits of owning a common share is the ability to vote on company policies and on individuals who will serve on the board of directors. In the long run, common stocks give high return rates to whoever has invested in them. Although we all know the rule of business that with higher rates of returns comes higher risks. especially in the event of liquidation of the company.

### What is common stock?

Common stock is a financial instrument that denotes ownership in a corporation; holders of this stock have the right to vote for the board of directors and to influence corporate policy.

## Common stock formula

The formula of common stock is given as:

Common stock = Number of issued shares – Treasury stocks

Where common stock is defined as the number of shares available to company owners who own a portion of the company, treasury stocks are shares that the company has purchased back, and issued shares are the total number of shares issued by the company out of the total pool of authorized shares.

## Common stock examples calculation

To better understand the subject topic, let’s look at some simple to advanced examples of common stock.

### Example 1

For example, company A has 5000 authorized shares, with issued shares of 2000 and treasury stock of 500. Calculate the common stock?

Using the common stock formula,

Common stock = Number of issued shares – Treasury stocks

Where;

The number of issued shares = 2000

Treasury stock = 500

Therefore,

Common stock= 2000-500 = 1500

This means that the common stock of company A is 1500.

### Example 2

Another example of common stock is assuming company A, which is a US stock in the steel industry, gave the following information (authorized shares=500,000,000, issued shares=340,500,629, and treasury stock=1,156,099) in their quarterly report. What is the common stock of company A?

Using the common stock formula,

Common stock = Number of issued shares – Treasury stock

Where;

The number of issued shares = 340,500,629

Treasury stock = treasury stock = 1,156,099

Therefore,

Common stock= 340,500,629 – 1,156,099 = 339,344,530

This means that the quarterly common stock of company A is 339,344,530

### Example 3

In the last example of common stock, we assume company A, which is another US stock in the steel industry, gave the following information (authorized shares=300,400,100, issued shares=177,464,375, and treasury stock=69,933) in their quarterly report. What is the common stock of company A?
Using the common stock formula,
Common stock = Number of shares issued – Treasury stock

Where;

The number of issued shares = 177,464,375

Treasury stock = treasury stock = 69,933

Therefore,

Common stock =177,464,375 -69,933 = 177,394,442

This means that the quarterly common stock of company A is 177,394,442.

## Common stock types

• Blue-chip stocks
• Income stocks
• Cyclical stocks
• Defensive stocks
• Growth stocks
• Speculative stocks
• Penny stocks

There are various types of common stock that are classified based on their investment characteristics. All of these types of common stock as mentioned above represent ownership in the company in question. Some stocks are more volatile than others. Some companies pay dividends to their shareholders, while others do not. Similarly, some are recent-year investments, while others are forecasts for future-year events. In fact, these stocks are classified according to their specific investment characteristics.

### Blue-chip stocks

The best kind of common stock is generally regarded to be blue-chip stocks. Blue-chip stocks aren’t specifically defined, but financial experts are aware of them. One definition of blue-chip stock that is frequently used is a business that has long-term, uninterrupted dividend payments to its shareholders over an extended period of time.

### Income stocks

Common stocks classified as income stocks have paid their shareholders a higher-than-average portion of their net income after tax (NIAT). Companies that provide public utilities, like telephone, electric, and gas companies, are excellent examples of income stocks.

### Cyclical stocks

Cyclical stocks are those in which the fortunes of the company are directly related to the state of the overall national economy. During an economic boom, the performance of these stocks is effective, but during a recession, their performance suffers.

The term “cyclical” does not refer to chart patterns or predictions about stock price movement. Their cyclical characteristics represent the business cycle. Steel companies, automobile manufacturers, and industrial chemical firms are examples of common stocks that are cyclical in nature. Cyclical stocks have a higher market risk than the average common stocks.

### Defensive stocks

Defensive stocks are those that are thought to be safer. They may not provide the same possibility for massive gains as more aggressive stocks, but they come from sectors such as consumer staples and healthcare, which are expected to perform well in virtually any economic environment.

### Growth stocks

Growth stocks are those that have a significantly higher growth rate than the market’s average growth rate. This simply means that it generates more earnings than the average common stock because of its ability to grow faster.

### Speculative stocks

Speculative can be defined as making assumptions or guesses based on hearsay instead of facts and numbers. Hence, one can say that a speculative stock is a high-risk, high-reward stock with uncertain prospects.

Investors and traders can determine whether a stock is speculative or not by examining the company’s business model, which will help them determine whether it is a risky buy. Speculative stocks typically trade at a lower price than other types of stocks. Professional speculators believe the stock’s value will rise in the near future. The volatility and high reward of speculative stocks make them appealing to many short-term investors or traders.

### Penny stocks

Penny stocks are a type of common stock with the following features;

• Trades at a low price
• Have a market capitalization that is very low
• Most of them cannot be liquidated

These common stock types are highly speculative and risky due to a complete lack of liquidity, a lower percentage of shareholders, substantial bid-ask spreads, and minimal information that is being disclosed.

## Features of common stock

• Long-term source
• Par Value
• No maturity
• Ownership
• Limited liability
• Residual claim
• Voting right

The above-listed are the key characteristics or features of common stock.

## FAQs

### What is common stock definition in accounting?

Common stock in accounting is a type of stock that gives its holders the right to vote at shareholder meetings and the ability to receive dividend payments.

### What is common stock definition in economics?

Common stock in economics is a type of tradable equity issued by a company that signifies a portion of ownership in the overall business.

### Why are common stock issued?

Common stock is issued in order to raise capital for a business. This capital is used for expansion, paying off debts, buying a promising company, and the establishment of a cash reserve for the future.

Last Updated on August 16, 2022 by Nansel Nanzip Bongdap
Entrepreneur at Financial Falconet | Author's Bio Page

Nansel is a serial entrepreneur and financial expert with 7+ years as a business analyst. He has a liking for marketing which he regards as an important part of business success.
He lives in Plateau State, Nigeria with his wife, Joyce, and daughter, Anael.