Definition:

Common stock represents ownership in a corporation and constitutes a claim on part of the company's assets and earnings. Shareholders of common stock typically have voting rights and may receive dividends.

Formula:

There is no specific formula for common stock itself, as it represents a type of equity. However, the value of common stock can be calculated using various valuation models, such as the Dividend Discount Model (DDM):

P = D / (r - g)

where P is the price of the stock, D is the expected dividend per share, r is the required rate of return, and g is the growth rate of dividends.

How to use the metric:

Investors use common stock to gauge ownership in a company, assess voting power, and evaluate potential returns through dividends and capital appreciation. It is a fundamental component of a company's capital structure and is often analyzed for investment decisions.

Limitations:

Common stockholders are last in line to claim assets in the event of liquidation, making it riskier than debt or preferred stock. The value of common stock can be highly volatile and influenced by market conditions, company performance, and investor sentiment.

Applies to:

Common stock is applicable across all industries, as it is a standard form of equity ownership in publicly traded companies.

Doesn't apply to:

Common stock does not apply to non-corporate entities such as partnerships or sole proprietorships, as these structures do not issue stock. It also doesn't apply to industries where companies are not publicly traded or do not issue common stock.

Summary:

Common stock is a fundamental equity instrument representing ownership in a corporation, providing voting rights and potential dividends. While it offers the potential for high returns, it also carries significant risk, especially in liquidation scenarios. Common stock is relevant across all industries with publicly traded companies but does not apply to non-corporate entities.