The stock market

WHAT DO YOU ALREADY KNOW ABOUT THE STOCKMARKET? If you can answer the following questions, you already understand some of the basics of how the Stockmarket works. 1. If you were selling an iPod, would you rather sell at a high price or a low price?  A. Low price  B. High price 2. if you were buying an iPod, would you rather buy at a high price or a low price?  A. Low price  B. High price

3. what you are buying 5. number of items you are buying  B. which of the following is unknown?  A. Prices don't change 4. be higher  B. if there are many buyers who wish to purchase a house. final price you will pay  C. At a house auction. The price tends to be higher  C. The price tends to be lower  B. be lower . While you are bargaining for something. At a fruit market what happens to the price of fruit when it is in season and there is a lot available?  A. the final sale price for the house is likely to?  A.

The stock market and the Circular Flow .

It allows firms access to the savings they need to increase production and to become more efficient  2. It provides savers the means to easily change the way they have allocated their savings .The Stockmarket is an important part of the financial system because:  1. It allows people more opportunities to gain income and wealth from their savings  3.

They are called listed companies because the original form of trading shares in companies involved the names of the companies being “listed” on large boards. stocks or securities.What is a share?  A share is a unit of ownership in a company.   . Shares in publicly listed companies are sometimes known as equities. A publicly listed company means the shares in that company are available for purchase on a market such as the Australian Securities Exchange (ASX).

 You can also find lists of companies in the finance section of the newspaper.Activity Three – Find out which listed companies are associated with the following products or services.au Use the Prices Research & announcements navigation area > Company research.. 3. . at the end of the slide show)     1. 2. Australian Idol Uncle Toby‟s Powerade Jetstar flights  A list of all companies can be found at www. 4.com.(to be done on the pc.asx.

. The sharemarket is like any other market where buyers and sellers come together for the purposes of exchange.What is the sharemarket?  Shares are bought and sold on the sharemarket.

issue shares (and other securities) to the public for the first time. .The Primary market: Primary means first The primary market is like a “launch pad” where companies that want to raise capital (cash).

Becoming a listed company  The company must be large enough and have been operating successfully for a period of time to qualify. . This is to give people some confidence but not a guarantee that the company is not a bad investment.

.Write at least 3 things a company should tell everyone about.The rules…???? One of these rules is to immediately tell the public about anything that would influence their decision to buy or sell shares in the company. Activity.

00 3.20 . Reject shop $2.10 2.Activity (log into a pc) If you had invested $1000 in each of the companies below. Luiri Gold $0. how much money would you have gained or lost since the company floated? (check the current price for the following stocks)  Company / Issue price    1. Myer Holdings $4.

Research and Announcements‟ heading on the left-hand side of the ASX homepage iii. Another term you might hear is Initial Public O f f e r i n g ( I P O ) . Go to www.au ii.asx. Select „Company Research‟ iv. Think of a ship beginning to set sail for the first time. Click on the „Prices.A float is when a company issues shares to the public for the first time.com. Click on „Upcoming Floats‟  List some companies that are scheduled to float on ASX and specify what their business is. .

There is no trading floor in Australia. . When both buyer and seller agree on a price per share a trade takes place. How are shares bought and sold? How the sharemarket works Buyers and sellers in the sharemarket exchange shares for a particular price.

05 Buyer B 99 cents Seller E $1.00 Seller D $1.Example: Company XYZ Buyer Bid Price Seller Ask Price Buyer A $1.00 =Trade Buyer C 98 cents Seller F $1.06 Key definitions: Bid price:Price buyer is preparedto pay per share Ask price:Price seller is preparedto sell per share .

Various varieties of shares… few things to know before analysing types of shares and their characteristics… .

Few of the ratios used for assessing shares performance Earnings per share  EPS =__Net Profit_______ Number of ordinary shares .

Price/earnings ratio  P/E ratio = ___Price per share___ EPS .

= Dividend per share x 100 Last sale price .Dividend Yield Dividend Yield perc.

etc. Sufficient investor interest must be demonstrated to warrant an entity's participation in the market by having its securities quoted. and information in which security holders. preference shares. Timely disclosure must be mad eof information which may affect security values or influence investment decisions.) must be issued in circumstances which are fair to new and existing share holders.  2.  3. . share options. investors and ASX have a legitimate interest. ordinary shares.What are the rules for listing on the ASX?  1.g. Securities (e.

enable ready comparison with similar information. Practices must be adopted and pursued which protect the interests of security holders. .  8. accountability and responsibility of entities and their officers must be maintained. where appropriate. The highest standards of integrity. 4.  5. including ownership interests and the right to vote.  6. Information must be produced according to the highest standards and. Market transactions must be commercially certain. Security holders must be consulted on matters of significance.  7.

“ A-One Clothing Company” has signed a contract to supply dresses and jackets to a chain of retail stores in London. B. “ More Hair Company” has found a miracle cure for baldness. Shock announcement to the press that Managing Director of “Ace Company” has misappropriated (taken) money from the company for several years.The share price of these companies is likely to fall or rise if… A. . C.

D. .  E. “Well Done Company” has just released its annual report showing record profit for the last financial year and projected profit in the next financial year is to be even better. “ Eureka Company” has just released a drilling report stating that more oil than first anticipated had been found and is now being drilled.

which might have an effect on other companies  They might see their volume of sales decrease. increased interest rates could reduce the company‟s profits.External factors (domestic)  Interest rates  For companies that have borrowed a lot of money. as people would spend less as well.  They will spend less. .

Exchange rates “Stronger” AUD:  Good for importers  Bad for exporters .

Capital Gain Tax… Commodity prices Approximately 30 % of listed companies on the ASX are in the resource sector. so energy and metal prices can have a dramatic affect on the sharemarket. .Government policies  Examples Resource Super Profit Tax.