Value and Growth Stocks Essay

959 Words Feb 8th, 2016 4 Pages
Ownership of a corporation is divided into shares is called Stock. The person who owns a stock is a shareholder. The major shareholders of the corporation elect board of directors. The shareholders would not have direct control because, in a corporation, direct control and ownership are often separate. Board of directors makes rules on how the corporation should run and delegates the decision making to corporate management team. The Corporate management team will consists of Chief executive officer (CEO) and Chief financial officer (CFO). The main important job of a financial managers is to make best decision to increase the value of the company which would increase the value of stock invested by the investors. Corporation would also …show more content…
Growth Stocks usually have high price to earnings and high price to book ratio. Successful companies like Apple whose earnings are expected to increase continuously above than the average rate relative to the market. Investors who purchase growth stocks receive returns from future capital appreciation rather than dividends. Some companies pay dividends to shareholders of growth stocks, but it is common for growth companies to reinvest the earnings on capital projects. Growth stocks may be expensive and overvalued. Growth stocks are not suitable for all investors. Some investors may look for low price value stocks and hope to increase their stock value. Both Growth and Value stock have investment risk. Because of the market conditions, the return and original value of stocks fluctuate. Investors and financial managers have to understand the market conditions carefully, as the growth and value stocks tend to run in cycle. Even though both Growth and Value stock investments have risk associated with them, value type investments earned more investors than growth stock investors. The value premium¬¬ – the phenomenon of companies with lower stock prices relative to their book values tending to outperform the rest of the market – has been one of the best-documented and most consistent of risk factors. In fact, when we compare the returns from January 1, 1979 to June 30, 2014 between the

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