Course 101:
What Is the Purpose of a Company?
In this course
1 Introduction
2 Money In, Money Out
3 The Two Types of Capital
4 Different Capital, Different Risk
5 Returns on Capital versus Returns on the Stock
6 Ownership Interests

It’s funny how trivia can drown out the essentials. Think of all the emphasis pundits put on stock prices, the Dow Jones averages, this quarter’s earnings per share, and so forth. Faced with this barrage of information, it is easy to lose sight of the reason companies exist in the first place. What the heck are companies for, anyway? And what exactly are stocks?

Simply put, the purpose of a company is to take money from investors and earn a good return on it. Period. It's an investment like any other. Investors have many choices about where to put their money: They can put it into savings accounts, money-market funds, government bonds, stocks, or any number of different investments. In each, they expect a return on that investment. Stocks are merely ownership interests in companies that are expected to create value with the money they are given.

Next: Money In, Money Out >>

Print Lesson |Feedback | Digg! digg it
Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores.
Copyright 2015 Morningstar, Inc. All rights reserved. Please read our Privacy Policy.
If you have questions or comments please contact Morningstar.