What is Common Stocks?

Definition of Common Stock and Shareholder Rights

Common stock represents securities that represent ownership in a company and grant the holder fundamental rights including voting in general assemblies, receiving dividend distributions, priority in new subscriptions, and receiving a share upon liquidation.

They also entitle the shareholder to access financial statements, attend general assembly meetings, and freely transfer and trade their stock.

Difference Between Common and Preferred Stock

The difference between common and preferred stock lies in that common stock grants full voting rights and profit participation based on performance, while preferred stock receives fixed predetermined distributions and priority in profits and liquidation but usually without voting rights. Common stock is more volatile and exposed to risks with potential for higher returns, while preferred stock is more stable and less risky. Preferred stock is also callable and sometimes convertible to common stock.

Types and Values of Common Stock

Types of Common Stock:

• Common stock with full voting rights: Grant one vote per share in all general assembly decisions
• Common stock with limited voting: Restrict voting rights in certain decisions or fewer votes
• Bonus stock: Distributed from capitalizing retained earnings or reserves without cash consideration
• Rights stock: Offered to existing shareholders first at reduced price before public offering

Stock Values:

• Nominal value: Fixed at 10 SAR in Saudi Arabia, basis for calculating capital and voting rights
• Market value: Actual trading price, affected by supply and demand, company performance, and market conditions
• Book value: Equity ÷ number of shares, reflects net accounting assets per share
• Fair value: True investment value based on financial analysis and future expectations

Advantages and Disadvantages of Common Stock Investment

Advantages of Common Stock Investment:

• High returns: Potential to achieve 8-12% annual returns long-term compared to bonds
• Voting rights: Participation in selecting board of directors and important strategic decisions
• Capital growth: Increase in stock value with company expansion and profit growth
• High liquidity: Ability to buy and sell instantly in organized markets
• Dividend distributions: Additional periodic income ranging 2-5% annually
• Diversification: Risk reduction through investing in multiple sectors and companies
• Inflation protection: Stock value growth usually keeps pace with price increases

Disadvantages of Common Stock Investment:

• Price volatility: Declines may reach 20-40% during crisis periods
• No guaranteed returns: Possibility of no dividend distribution or losses for years
• Late priority: Last to receive rights upon company bankruptcy
• External factors impact: Oil prices, monetary policies, global crises
• Expertise requirement: Requires studying financial statements and market analysis
• Liquidity risks: Difficulty selling small company stock sometimes
• Fees and expenses: Brokerage commissions and taxes reduce net returns

Characteristics of Common Stock (Maturity, Accounting Classification)

Characteristics of common stock feature no specific maturity date as they are perpetual and continue throughout the company's life, only redeemed upon liquidation or buyback. Regarding accounting classification, they are listed under equity in the balance sheet, not liabilities or debts, and recorded at nominal value of 10 SAR in Saudi Arabia with separate disclosure of share premium if any.

How to Access Common Stock Data

• Tadawul Saudi website: Real-time prices, trading volume, financial statements
• Brokerage applications: Bank and brokerage company apps for direct monitoring
• Company website: Annual reports, financial statements, announcements
• Financial websites: Market information, analyses, financial news
• Brokerage reports: Analyses and recommendations from investment companies
• Economic newspapers: Coverage of company and market news