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59 Cards in this Set
- Front
- Back
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How does a company raise money from investors?
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Issue Stocks and Issue Bonds
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What does the Articles of Incorporation or Corporate Charter contain?
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1) Name, purpose & nature of business.
2) Names & addresses of original directors. 3) Duties of corporate officers. 4)Authorized shares. |
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What 2 entities are associated with the issuance of corporate securities?
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1) Transfer Agent
2) Registrar |
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Transfer Agent
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-Responsible for recording changes in stock ownership
-Sends dividends & proxies -Typically a BANK |
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Registrar
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-Makes sure the corporation doesn't issue more shares than itscharger allows
-Must always be independentof corporation |
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Par Value
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-Arbitrary value printed on certificate
-Never Changes -Used for book keeping purposes -Does not effect the market value |
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Book Value
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-Net worth of the corporation divided by the # of outstanding shares.
-Actual Market Value may be above, below or equal to Book Value |
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What are the 6 rights of Commom Shareholders?
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1) Right to vote
2) Right to receive limited financial information about the company 3) Pre-emptive rights 4) Right to share in corporate profits 5) Right to transfer ownership 6) Right to liquidation if corporation fails |
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Right to Vote
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-Changes to Corporate
-Mergers & acquisitions -Financial regorganizations -Stock splits -Issuing convertible bonds or preferred stock -Issuing stock options to officers on a preferential basis -Board of directors |
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Right to receive limited financial information
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Quarterly incomes statements and balance sheets
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Pre-emptive rights
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Current shareholders have the opportunity to purchase new shares tokeep their ownership mercentage the same.
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Right to share in corporate profits
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-Dividend
-Shareholders do NOT vote for dividend declarations -Declared with Board of Directors |
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Right to transfer ownership
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Right to buy & sell their shares.
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Right to liquidation if corporate fails
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Entitled to any monies left after a liquidation of corporation's assets. Common stockholders are last priority though
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Authorized Shares
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Shares the corporation is allowed to issue based on the Corporate Charter
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Unissued Shares
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Portion of authorized shares NOT yet sold to the public.
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Issued Shares
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Portion of authorized shares which have been sold to the public.
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Treasury Stock
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-Portion of Issued Shares that are repurchased by the company.
-Have NO votiing rights -NOT entitled to dividends |
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Why a company buys Treasury Stock?
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-Avoid takeover
-Use for Employee Stock Ownership Plans -Increase demand for shares -Use as collateral to borrow money |
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Outstanding Shares
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Portion of Issued Shares that are owned by the public
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Outstanding Formula
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Issued - Treasury = Outstanding
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Statutory Voting
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Each share represents one vote for each position in the Board Of Directors.
Also called "REGULATORY" |
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Cumulative Voting
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Each share controls as many votes as there are Board Of Directors.
Voting is Best for Smaller companies. |
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Regular Way Settlement
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Settle on the THIRD BUSINESS DAY AFTER THE TRADE DATE.
(T + 3) |
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Cash Settlement
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Settle on the same day if done before 2:30 PM, E.S.T.
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Seller's Option
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Settlements may take place up to 180 business days after trade date, but no sooner than 4 business days after the trade date.
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Type of Dividend forms
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-Cash
-Property -Stock Dividends -Products of the company |
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Declaration Date
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-Set by Board of Directors
-Day Dividend is announced |
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Ex-Dividend Date
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-Set by Exchanges
-1st day stock trades withOUT a dividend -2 business days prior to the record date -If stock is purchased on or after this date, then the new stock owner will not be entitled to the dividend. |
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Record Date
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-Set by the Corporation's Board of Directors
-The day that shareholder must be listed on the transfer agent's books as owner, to be eliglible to receive the dividend -If trade settles on or before the Record Date, new owner will receive dividend. |
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Pay Date
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-Set by Corporation's Board of Directors
-Day dividend will be paid |
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Ex-Dividend Date Price Adjustments
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Take the amount of the dividend and then subtract that ammount from the prior day's closing price.
Closing price - Dividend = New price |
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Stock Dividend
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-Percentage of a share.
-Ownership ratio and portfolio value must always remain the same |
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How to find the value of a stock dividend?
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-Put the dividend percentage into fractional terms.
-Find the total # of shares after the split multiply by the fraction -Find the new stock price multiply the old price by the reciprocal of the dividend fraction. |
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Stock Split
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-Must be approved by investors
-Does NOT change ownership % -Does NOT change overall portfolio value, but price per share will be effected |
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Forward split
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-Increases shares outstanding
-Lowers market price -Multiply the original # of shares by the split's fraction to find the total amount of shares. -Multiply the old price by the reciprocal of the split's fraction to find the new price. |
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"Two for One" (2:1)
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For every one share owned, you now have two, but the market price per share would be reduced
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Reverse split
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-Reduces shares outstanding
-Increases market price -Multiply the original number of shares by the split's fraction. -Multiply the old price by the reciprocal of the split's fraction |
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"One for Two" (1:2)
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For every two shares owned, you have one, but the market value per share would be increased.
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What are the effect of splits on the stock certificates?
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-Investor does NOT have to send anything in
-Company sends shareholders certificates for additional shares. -Company sends stickers to shareholders to change the par value on the old certificates. |
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Preemptive Rights Offerings
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-Investors maintain proportional ownership in a corp by puchasing new shares @ a discount
-"Right of first refusal" -Short term, 30-90 days -One right per share -Handled by a Transfer Agent |
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Stand-by Underwriting
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If there are shares left over, a brokerage firm may purchase the unsold shares from the issuer @ a discount, and then resell them to the public.
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Formula: How many rights are needed to purchase one new share?
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# of rights issued / # of new shares being issued
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Cum Rights
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Old shares trading with rights
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Formula: Cum Rights
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(Market Value of Stock - Subscription Price) / (# of rights needed to buy one new share + 1)
(M-S) / (N + 1) |
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Ex-Rights
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Rights can be sold separately from the old shares.
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Formula: Ex-Rights
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(M - S) / N
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American Depository Receipts (ADRs)
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-Facilitate trading of foreign securities in US Markets
-US Bank registers the ADR w/SEC US laws -Bank pays dividends in US dollars -ADR holders have no voting rights or pre-emtive rights -Investors can NOT receive the company's certificate -Market price is influenced by company performance & currency rates |
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Sponsored ADRs
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-Company selects a US Bank, which is stationed in their country.
-All quarterly reports are published in English -Exchange traded |
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Unsponsored ADRs
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-Many banks/brokerage firms.
-Quarterly reports are published in the language of the corp's country -Only trade OTC |
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Warrants
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-"Sweetner", making the offering more attractive
-Allows investors to buy additional shares @ a fixed price. -Price is set @ a premium to the new issue market price. -Each is good for one share. -Marketable & trade like stock -Long term -No voting rights or dividends -When stock & warrants are issued together in an IPO, it's a "UNIT". |
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Preferred Stock
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-Pays a fixed cash dividend
-Par value = $100 -Annual dividend is expressed as a percentage par -Have no voting or pre-emptive rights |
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Cumulative Preferred
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All present & past due dividends must be paid to preferred stock holders before the corporation can pay a dividend to common shareholders
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Non-cumulative Preferred
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Past due dividends do NOT have to be paid prior to the payment of a common dividend, but present dividends must be paid.
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Participating Preferred
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If the corporation has exceptional earnings, the preferred shareholder can receive additional dividend payments above the stated percentage
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Callable Preferred
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Corp is allowed to buy back the preferred stock @ any time at a fixed price. Pays a higher dividend than a non-callable.
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Convertible Preferred
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Shareholder is allowed to convert the preferred shares into common stock of the corp @ any time and at a predetermined rate
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Adjustable Rate Preferred
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Corp is allowed to adjust the interest rate on the preferred. Due to the adjustment of the interest rate, the market price would tend to stay stable @ par.
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What are the special tax breaks on dividends for corporate buyers fof preferred stock?
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1) 70% exclusion if they own less than 20% of outstanding shares.
2) 80% exclusion if they own 20% or more of outstanding shares. |
