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Summary of The Purpose of a Company

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Summary of The Purpose of a Company

In the end, stocks are ownership interests in companies. We can't emphasize this fact enough. Being a stockholder is being a partial owner of a company.

Over the long term, a company's business performance and its stock price will converge. The market rewards companies that earn high returns on capital over a long period. Companies that earn low returns may get an occasional bounce in the short term, but their long-term performance will be just as miserable as their returns on capital. The wealth a company creates—as measured by returns on capital—will find its way to shareholders over the long term in the form of dividends or stock appreciation.

What you have learned

  1. Money In and Money Out
  2. The Two Types of Capital
  3. Different Capital, Different Risk, Different Return
  4. Return on Capital and Return on Stock
  5. The Voting and Weighing Machines

Find out what you have learned