Common Stock

Common stock represents an ownership interest in a corporation, but to the typical investor, a share of common stock is simply a piece of paper.

Common stocks provide an expected future cash flow stream, and a stock's value is found in the same manner as the values of other financial assets - namely, as the present value of the expected future cash flow stream. The expected cash flows consist of two elements: (1) the dividends expected in each year and (2) the price investors expected to receive when they sell the stock. The expected final stock price includes the return of the original investment plus a capital gain.