Stock represents partial ownership of a company. It can make investors rich if the company does well and poor if it doesn’t. In addition, it gives shareholders the right to vote on decisions that affect the company.

A business issues stock to raise money to grow or pay off debts. Once it has enough, it can then list those shares on a public exchange. That enables everyday people to invest, and makes the company more accessible to regulatory agencies like the Securities and Exchange Commission. It also means the company’s financials are in the public domain, which can cause stocks to react differently from other investments such as bonds or real estate.

The price of a stock is determined by supply and demand. The more demand there is for a specific stock, the higher the price will be. However, there are many other factors that should be taken into account when evaluating a stock. Investors can look at the earnings per share of a company, or its price-to-earnings ratio. They can also take into account its dividend payments, or how much inflation will affect future returns. They can read analyst reports written by professional analysts to get insights into the market as a whole or individual companies.

Some investors prefer to look at a company’s historical return on equity, or ROE. This takes into account the company’s profit divided by its total assets. This can help them decide whether or not it’s a good value investment. Others look at valuation metrics such as the Buffett Indicator, or other measures used by financial professionals.

A stock can be classified by type as well. For instance, class A stock indicates voting rights or some form of ownership control, while class B stocks are more diluted. There are other classifications based on size, such as large-cap, mid-cap, and small-cap. Companies may also be grouped into industries based on their revenue, or into sectors, such as technology, health care, and energy. This allows investors to compare the performance of similar companies and helps in diversifying their portfolio.

The biggest advantage that stocks offer over other types of investments is limited liability. With other types of investments such as partnerships, if the company fails creditors can go after you for your personal assets, which can be a big risk. With stocks, the maximum you can lose is the amount of your investment in the company. That doesn’t mean it’s risk-free, but it’s a lot less than the risk of other types of investments. Even so, it’s important to monitor stocks because one bad news story can send them plummeting. The bottom line is that stocks offer the highest potential for growth over the long term, but they’re always subject to market forces like supply and demand. That’s why it’s so important to understand the basics of investing before jumping in.