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Stocks 105: The Purpose of a Company

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1.
When are shareholders entitled to get their cut of a company's profits?
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After everyone else. This is one of the risks of being a shareholder -- you are always paid last. On the other hand, you get potentially unlimited earnings possibilities once you do get paid.
2.
If a company is unable to pay its creditors back and goes bankrupt, stock shareholders will be first in line to get a claim on its assets.
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False. Stockholders will be last to get their claim. Creditors will be in line before them (but after the IRS, of course).
3.
Which of the following best defines a stock?
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A stock is an ownership interest in a company. Although companies receive money from stock offerings, it is more important to remember that a stock represents a stake in a company. Stocks should not be considered vehicles for speculative trading.
4.
A company's return on stock is calculated by _______.
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Adding capital gains and dividends. This is also known as total return.
5.
According to the father of value investing, Benjamin Graham, in the short run the market is like a _______.
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Voting machine. In the short run, the market sees the popularity of a company rather than its substance. A voting machine assesses its popularity.