Activity 1

STOCK OWNERSHIP:  A DELICIOUS TOPIC


Name________________________        Date ________________________

     Toad is Maria's best friend, but sometimes his impractical schemes are a bit much, even for Maria.  Yesterday was a good example.  He embarrassed her at McDonald's just because he was ignorant about stock ownership and insects.

     Stock ownership and insects?  Yes.  It all started when Toad stopped by Maria's house and asked her to go to lunch at McDonald's.  "Nothing like fries and a burger and something special for lunch," he said, as they walked over ot the local Golden Arches.

     "Something special?"  she asked.  But he just ignored her as he hopped along, carrying a carefully folded brown bag.

     At the restaurant, Toad offered to buy lunch.  He asked maria to find a table and to guard his brown bag.  "Don't look inside, it's a surprise," he said.  That should have been enough warning, Toad buying lunch and asking her to guard a brown bag; but she just went along with everything because he brain was temporarily locked in the numb position.

     Shortly he joined her at the table with the food and a sour mood.  "What is the matter?" she asked.  "Didn't they give you good service?"

     "Oh, yes," Toad grumped, "but apart from the service she was so uncooperative!  I said I wanted to see the owner about this great idea of mine, but she said she was the local franchise owner.  I said, 'so you own all the McDonald's in the world?' And she said, "No, it is impossible to talk to those owners.'  Then she started waiting on the next customers.  She's so rude!"  Toad moaned.

     "Actually," Maria replied, "she is right.  There are 226,656 owners of McDonald's.  Maybe you should become an owner."

     "That's a great idea," Toad replied.  "Then I could have the restaurants serve my favorite foods and I could eat free.  If I own the business, then I get to run it my way, right?"

     "Not exactly," Maria replied.  "I learned a lot about ownership and business by surfing the Internet.  If you want to become a part owner of McDonald's, all you have to do is buy stock in that company.  You become a part owner of the company, but many other people will also have bought stock in the company.  So you are only one of many people who share its ownership.  That's why stocks are called shared."

     "But I could only eat a tiny share of all the food McDonald's cooks each day," said Toad.  "As a part owner, couldn't I eat part of their food?"

     "No, you couldn't.  McDonald's has close to 694 million shares of stock.  That means that the ownership of every hamburger McDonald's produces is really divided into 694 million parts.  If you buy one share of stock then you would own one of 694 million parts of each hamburger."

     "That's hard to imagine," said Toad.  "That little bit wouldn't fill me up."

     "And the same would be true for the company's buildings, stoves, and furniture.  You would own only one 1/694 millionth of each thing."

     "Well, maybe I could decide what food to put on the menu if I were an owner of McDonald's stock," Toad said.  "They are really missing a sure bet by not offering a more varied menu."

     "Actually, you can't do that either," Maria replied.  "For each share of stock, you get one vote for the company's top managers, or directors.  With so many owners or stockholders, you by yourself would not have a big influence on what the company offers as its menu.  Actually, managers run the company for you and the other stockholders."

     "So what would I get for buying a share of stock in the company?" asked Toad.  "It doesn't sound  like much of a deal to me."

     "Each share of ownership entitles you to some of the profits the company earns," she explained.  "But profit is not a sure thing.  If people don't like the food, the company wouldn't earn enough money to cover the costs and earn a profit.  Any business is risky because the future is uncertain.  A company could spend lots of money for buildings, equipment, or developing a  new product.  But if customers don't like the product or if prices are too high or products of other restaurants are more attractive, business income will be too low.  Success is never a sure thing, so there is always a chance of loosing your money.  Any business is risky and someone has to bear that risk.  That's what stockholders do as owners of a business."

     "Sounds exciting," said Toad.  "So why buy a stock and risk losing money?"

     "Because you can make a gain also.  You think the business will earn a profit on the product, so you take the risk.  The possibility of earning a profit gives the owners and managers of a  business an incentive to produce something consumers want to buy at a price they are willing to pay.  If the business succeeds, its owners will earn a profit.  That is the reward stockholders get for risking their money.  Customers also benefit because they get something they like.  Employees of the business benefit because they have a place to work and earn income.  It's like they're all on one big team with the same goal.  But owners are the only ones who risk their own money on whether the goal is accomplished."

     "So by buying a stock," Toad said, "I become a business owner who takes part of the risk that the company might fail.  But if the company succeeds, I may get some of the company's profit.  I'd like to do this, because I know McDonald's could make a profit from my new menu idea.  It's tasty, inexpensive to produce, and everyone in my family likes it."

     Then Maria asked the fatal question.  "Toad," she said what is the food you think McDonald's should have on its menu?"

     "Look at this great stuff!"  Toad shouted as he opened the bag and dumped the contents onto their food plates."  Over at Windy Willows Community Center where all my relatives live, this is our favorite food.  Try some.  It's got chocolate on it.  I know you will like it."

     The food was very small--bite sized--and very tasty.  The chocolate taste dominated, but Maria noticed an unusual aftertaste that was not unpleasant.  Other people sitting nearby were interested, so Toad also shared it with them.  Even the franchise owner came over to see what the fuss was about and tried some.  Everything was going great until someone asked, "What is this food?"

     On the way home Maria was mad enough to spit.  "How could you embarrass me that way?  You know most people do not like to eat ants, flies, mosquitoes, and earthworm parts.  Now we can never go back to that McDonald's Restaurant!  I know for sure McDonald's will never hire you to decide on their food menu.  Can you imagine what would happen to their sales if they served your food?"

     "I'm sorry," Toad replied.  "I just thought that the chocolate flavor would take care of the problem."

Questions for Discussion

  1. How many people own McDonald's?
  2. Why would people wish to buy McDonald's stock?
  3. How do you become an owner of McDonald's?
  4. What are the benefits of stock ownership?
  5. What are the risks of stock ownership?
  6. Will McDonald's accept Toad's suggested menu?
  7. How do profits help McDonald's?

© Council for Economic Education, New York, NY
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