UofT Engineering Finance Association
Learning Session - 1
Intro to Markets
UTEFA
Market Structure
► What is it and what it means
► Companies
► Stocks
► What are they and what do they do
►
Introduction
Market
Structure
Companies
Stocks
Conclusion
2
Market Structure
►
UTEFA
Organizational characteristics of a market
► Monopoly
► Only one provider of a product or service
► Oligopoly
► Market is run by a small number of firms
that together control the majority of the
market share
Introduction
Market
Structure
Companies
Stocks
Conclusion
3
Market Structure
UTEFA
Monopsony
► Single buyer in the market
► Oligopsony
► Many sellers buy only few buyers
►
Introduction
Market
Structure
Companies
Stocks
Conclusion
4
Market Structure
UTEFA
Quick Reference to Basic Market Structures
Market Structure
Seller Entry
Barriers
Seller
Number
Buyer Entry
Barriers
Buyer
Number
Perfect Competition
No
Many
No
Many
Monopolistic Competition
No
Many
No
Many
Oligopoly
Yes
Few
No
Many
Oligopsony
No
Many
Yes
Few
Monopoly
Yes
One
No
Many
Monopsony
No
Many
Yes
One
►
Difference between Perfect/Monopolistic competition?
► Elastic demand curve – price vs demand of commodity
Introduction
Market
Structure
Companies
Stocks
Conclusion
5
Market Structure
UTEFA
Perfect Competition
Monopolistic Competition
Introduction
Market
Structure
Companies
Stocks
Conclusion
6
Companies
►
UTEFA
Canada
►
►
►
►
►
Sole Proprietorship – No formal business structure is
established
General Partnership – Formal structure with a partnership
agreement
Limited Partnership – Investment structure, limiting both the
liability and the participation of the investor
Corporation
Joint Venture
Introduction
Market
Structure
Companies
Stocks
Conclusion
7
Companies
►
UTEFA
We focus on publicly traded companies (ones that
you can invest in)
►
►
Publicly traded partnerships
► Over 90% of its income is in real estate, energy
and transportation, and commodities
Corporations
► Majority of companies on the stock exchanges
Introduction
Market
Structure
Companies
Stocks
Conclusion
8
Stocks
►
Stock
►
►
UTEFA
Represents the residual assets of the company that would be
due to stockholders after discharge of all senior claims
Shares
►
►
►
The stock of a corporation are divided into shares, the total of
which are stated at the time of business formation
Additional shares may be issued if authorized by shareholders
Represent a fraction of ownership in a business
Introduction
Market
Structure
Companies
Stocks
Conclusion
9
Stocks
►
UTEFA
Shares con’t.
►
Can have different classes of shares
►
►
e.g. Google
► Class-A  shares held by regular investors, 1 vote/share
► Class-B  shares held by BoD/partners, 10 votes/share
► Class-C  shares held by employees, 0 votes/share
Can also have preferred shares
►
►
Introduction
Usually guaranteed fixed dividend “forever”
In event of liquidation, preferred shares are paid off before common
Market
Structure
Companies
Stocks
Conclusion
10
Stocks
►
UTEFA
Why do companies issue stocks, what does it do?
►
Raise money
►
►
►
►
Introduction
Equity financing vs. Debt financing
Companies would rather share some of their profit and not pay back
their shareholders in case of liquidation
Interest payments are not needed
Effectively lowers the risk of the company
Market
Structure
Companies
Stocks
Conclusion
11
Stocks
Introduction
UTEFA
Market
Structure
Companies
Stocks
Conclusion
12
Conclusion
►
Market Structure
►
►
Mainly macroeconomics, don’t worry about it too much
Companies
►
►
►
UTEFA
Types of companies
Which ones are traded, who has responsibility
Stocks
►
►
►
Why are they issued – to raise money
Different types of stocks
Risks associated with stocks
Introduction
Market
Structure
Companies
Stocks
Conclusion
13
Conclusion
►
UTEFA
Next Week
► Get into Accounting
►
►
Assets = Liabilities + Shareholder Equity
Break off into groups for the year
Introduction
Market
Structure
Companies
Stocks
Conclusion
14