Course 105: The Purpose of a Company
The Bottom Line
In this course
1 Introduction
2 Money In and Money Out
3 The Two Types of Capital
4 Once a Profit Is Created...
5 Different Capital, Different Risk, Different Return
6 Return on Capital and Return on Stock
7 The Voting and Weighing Machines
8 The Bottom Line

In the end, stocks are ownership interests in companies. We can't emphasize this fact enough. Being a stockholder is being a partial owner of a company.

Over the long term, a company's business performance and its stock price will converge. The market rewards companies that earn high returns on capital over a long period. Companies that earn low returns may get an occasional bounce in the short term, but their long-term performance will be just as miserable as their returns on capital. The wealth a company creates--as measured by returns on capital--will find its way to shareholders over the long term in the form of dividends or stock appreciation.

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