FACULTY OF BUSINESS AND MANAGEMENT

DIPLOMA IN BANKING STUDIES

(BA119)

INVESTMENT MANAGEMENT

(FIN358)

INDIVIDUAL ASSIGNMENT

TITLE:

THE FINANCIAL SECURITY OF COMMON STOCK

PREPARED BY:

NAME NUR ELLYSAHANIS SUZAILA BINTI HAMILI

STUDENT ID 2020229412

PREPARED FOR:

MADAM DR. MAILY BINTI PATRICK

SUBMITTED:

7th May 2023

TABLE OF CONTENT

CONTENT PAGE

1.0 INTRODUCTION
2–3
1.1 Financial Security
2.0 BODY CONTENT
2.1 What is common stock? 4
2.2 Who can invest the common stock? 5
2.3 Where is the limitation of common stock? 5
2.4 Why do people invest in common stock? 6
2.5 How to invest common stock? 7

3.0 CONCLUSION 8

4.0 REFERENCES 9

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1.0 INTRODUCTION

Varied people have different definitions of financial security. The point is that one
definition of financial stability is having enough money to pay all your payments, save for
retirement, and have a positive balance. Financial security, on the other hand, is a situation in
which a person has enough money to cover necessities such as food, shelter, clothes, health
care, and living bills, and they can deal with financial challenges without jeopardising their
well-being while also saving for the future.

Furthermore, financial security denotes your ability to live comfortably and feel secure.
When you are financially secure, you no longer must worry about being unable to pay expenses
or having insufficient funds.

1.1 FINANCIAL SECURITY

A financial security is a document with monetary value. Certificates are now more
typically electronic than in the past. It specifies if the owner owns publicly traded stock or debt.
Furthermore, in ordinary parlance, stocks and bonds are referred to as "financial securities."
This sort of financial security has become more frequent as derivatives have grown in
popularity. As a result, financial securities are no longer used to show ownership in today's
culture. They refer to financial products rather than the financial product itself, which is
sometimes referred to as an asset or financial instrument.

In our society, financial security is simply having enough money to sustain and increase
our standard of living while working toward our financial goals. Although financial security is
frequently evaluated in terms of how much money people earn, spend, and save, it also reflects
how they perceive their financial condition. Furthermore, financial securities are divided into
four categories which is debt securities, equity securities, and derivative securities.

Following that, debt securities are intangible assets. Debt securities are a sort of debt
that can be sold in the market before maturity. Issuers, governments, corporations, businesses,
investors, and lenders own it. In terms of maturity, collateral, and other characteristics, these
securities are also wholly distinct from one another. Debt securities also include treasury bills,
bonds, and commercial paper.

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 If all of the company's assets have been sold and all of its debts have been paid, that is
equity, or money handed to shareholders. A company stake, partnership, or firm capital is also
referred to as an equity security. Aside from the numerous types of ownership, one can own
shares in partnerships and limited liability companies. However, common stock and preferred
stock are two fundamental components of equity securities. Ordinary shares and preference
shares are thus two fundamental components of equity securities. The company can also sell
bonds and convertible warrants.

Derivatives are a sort of sophisticated financial security that has been agreed upon by
two or more parties. Traders frequently employ derivatives to gain access to certain markets
and trade for various assets. The most prevalent underlying assets include stocks, bonds,
commodities, currencies, interest rates, and market indexes. The contract's value is determined
by the change in the price of the underlying asset.

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2.0 BODY CONTENT

2.1 What is common stock?

Common stock is both an individual's ownership of the company and a corporation's

claim to the profits from business ventures. Additionally, common stock, which is the most
common equity issued by the corporation and is sometimes referred to as common shares,
ordinary shares, or voting shares Key decisions, including the election of the board of directors,
are subject to shareholder input.

Each share of common stock will also reflect a portion of the company's ownership.
The value of the company's common stock will rise if the asset value rises or if the business
performs well; however, if the business performs poorly, the stock value will typically fall.
Stock investing typically enables investors to guarantee the company's long-term success.
People are more likely to succeed in long-term investments, which explains this. Because
dividends on common shares are not certain, it differs from preference shares. As a result, how
well the issuing firm is represented determines the value of common shares.

Dividends on common stock are not certain, in contrast to preferred shares. As a result,
the common stock's value is determined by how well the issuing firm is represented. However,
because the investor loses money if the company's earnings decrease, it makes common stock
riskier than preferred stock. The investor has a better chance of earning from a company's
growth if ordinary stock rather than preferred shares is an option.

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2.2 Who can invest the common stock?

Due to the high level of risk associated with common shares, investing in them is not
recommended for those who are frightened of taking financial risks. Aside from that, this
common stock's value is unpredictable because it fluctuates greatly. As a result, while common
stocks have the potential for significant development, long-term investors are likely to seize
the chance to invest in these alternatives. Common stocks are likely to be a desirable investment
choice for those with a risk tolerance and long-term view for several key reasons.

2.3 Where is the limitation of common stock?

Starting in the stock market with common stocks is the best course of action. Investors
will acquire shares of large corporations when they purchase common stocks. This is their
opportunity, as novice investors, to experience the activity first-hand. Like every investment,
common stocks have their own restrictions, including market-related risks, unguaranteed
profits, and a lack of ownership in the company.

The danger pertaining to the market comes first. Common stock values fluctuate
regularly because of market instability. The value of the common stock may fluctuate at each
distinct stage of development, making it challenging to assess the company's success.
Comparatively speaking, common stockholders run a higher chance of going bankrupt and
losing every penny they invested.

The return is not assured, which comes next. This indicates that the market's influence
on the generation of revenue results in a wide range of income returns for common stocks.
There is no such assurance when it comes to producing money. The main attraction for
investors is the growing potential of common stocks.

Moreover, there is a lack of control over the business. The amount of revenue from
investments in common stock is largely determined by the business plan and policies of the
company, with little impact from investors. Investors' authority is becoming increasingly
constrained because they are not permitted to attend meetings where policies are made, or to
evaluate the company's financial statements or business plans.

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2.4 Why do people invest in common stock?

Common stock can give investors the chance to make a quick investment in a business.
Purchasing and selling common stock is one of the best ways for a company to get funds and
expand. The investor is expected to obtain a sizable return on investment if the business
expands quickly. Common share investments offer with several advantages, including voting
rights, potential income, dividends, and liquidity.

Having the ability to vote comes first. As a result, shareholders have one vote every
share of common equity they own. Participation in corporate decisions and policies is part of
that. Investors may cast ballots, for instance, to choose a company's board of directors or to
endorse a business strategy. The advantage is set up so that holders of a lot of common stock
will profit from the power.

Second is potential profit. Common stocks surpass other investment products such as
certificates of deposit and bonds in terms of performance. This is because the return on
investment in common stock is limitless. Furthermore, common stock is a less expensive and
more realistic alternative to debt.

Thirdly are dividends. Dividend declaration in the country is one of the most important
decisions for every board of directors. When dividends are paid on common stock, each
shareholder receives an equal share. Although dividends are not guaranteed, owners are entitled
to equitable treatment if dividends are given. Before receiving dividends, for example, owners
must possess at least 12% of the company's common stock. As a result, to be fair to all
shareholders, the board of directors not only rewards some parties while disregarding others.

Finally, there is liquidity. The efficiency or convenience with which an asset or security
can be swapped for immediate cash without impacting its market price is referred to as
liquidity. This is because cash is the most liquid asset, allowing investors to easily acquire and
sell it. As a result, it can aid in the expansion of the company's shareholding as well as the
acquisition of more shares by investors. If their investment is not sufficiently rewarding, they
can refund it soon. As a result, shares may be purchased at reasonable rates with little effort,
making them an appropriate investment instrument for many.

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2.5 How to invest common stock?

To begin, anyone considering investing in common stocks should have a solid

understanding of the type of business a firm conduct and how it creates earnings. However, if
the investor does not comprehend how the company creates money and profits, he or she should
avoid making the investment.

Investors can advance in the company's finances after they have a thorough understanding
of the principles of investing. Just a few of the variables that every investor should look for are
sales, profit and net income, earnings per share, free cash flow, and price-to-earnings ratio.

Most online financial websites, such as Yahoo Finance and Google Finance, provide this
type of information. If investors pay close attention to these measurements, they will gain a
better understanding of how well a company and its stock are functioning regularly. Following
that, investors can determine if the company's current success is likely to be sustained in the
future.

Furthermore, once investors have established that the shares are a worthwhile investment,
they can purchase them through a broker or trading programme. Even yet, investors should be
mindful of changing assets so that their money is linked to different companies, which will
protect them if a company performs poorly or goes out of business.

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3.0 CONCLUSION

To conclude, investors who want to participate in the company's common stock must
conduct a thorough analysis of the stock before determining whether to do so. Overall, to make
an acceptable investment decision, investors should evaluate variables such as the track record,
the company's development potential, and the soundness of its plans. Furthermore, to avoid
losing all of their money or incurring losses, they must study common stocks for new investors,
as the main danger of investing in common stocks is that the firm will go bankrupt, fall on hard
times, or fail to prosper. This is because there is no corporation or government organization
that guarantees or protects common stock. Aside from that, the most important thing we can
do to ensure long-term financial security and well-being is to invest in ordinary shares. To
protect oneself from market danger, we should diversify our assets into diverse assets such as
gold or bonds. However, for most investors, long-term investing in equities makes the most
sense.

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4.0 REFERENCES

1. Baker, Brian. “Preferred Stock Vs. Common Stock | Bankrate.” Preferred Stock Vs.
Common Stock | Bankrate, www.bankrate.com/investing/common-vs-preferred-
stocks. Accessed 29 April. 2023.
2. Reiser, Brian M. “Common Stock: What Is It and How Do I Invest?” Investment U, 9
Sept. 2020, https://investmentu.com/common-stock/ Accessed 4 May. 2023
3. “Common Stock: What It Is, Different Types, Vs. Preferred Stock.” Investopedia, 27
Apr. 2022, www.investopedia.com/terms/c/commonstock.asp. Accessed 4 May. 2023
4. Girardin, McKayla. “What Is Common Stock?” Forage, 9 Sept. 2022,
www.theforage.com/blog/skills/common-stock. Accessed 5 May. 2023
5. CFP, Matthew Frankel. “How to Invest in Stocks: Step-by-Step Beginner’s Guide | the
Motley Fool.” The Motley Fool, https://www.fool.com/investing/how-to-invest/stocks/
Accessed 5 May. 2023.
6. “Pros and Cons of Issuing Common Stock.” Small Business - Chron.com,
https://smallbusiness.chron.com/pros-cons-issuing-common-stock-55949.html
Accessed 6 May. 2023.

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