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31 Cards in this Set
- Front
- Back
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Corporation |
A legal entity created by law that is separate and distinct from its owners
Corporations can: Sue or be sued Enter into contracts Buy property Pay taxes Borrow money |
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Publicly Held |
Stocks or shares are sold to the public on the stock exchange, the company must reach a certain level of revenue to be sold publicly
Ex. Microsoft, Apple, Coke |
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Privately Held |
Shares are held by usually only a few people, shares are not available to the general public on the stock exchange
Ex. NHL, spence diamonds, car star, vector group |
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Authorized Shares |
Maximum amount of shares a corporation is allowed to sell as authorized by the corporate charter |
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Issued shares |
Number or shares sold
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Contributed Capital |
Money received from selling shares |
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Retained Earnings |
Accumulation of net income
Retained earnings, opening balance + net earnings- dividends= retained earnings, ending balance |
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IPO |
Initial Public Offering
The first time a company offers shares for sale on the stock market The shard can be sold directly by corporation or by the brokerage house The corporation receives cash from the sale of the shares |
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Setting a Price for IPO |
Factors to consider:
- anticipated future earnings -company's current financial position - current state of the company - current state of the stock market |
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Common Shares |
Gives the shareholder ownership rights in the company Shareholder is issued a share certificate as proof of ownership This types of share is usually purchased for capital gains |
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Rights of Common Shareholders |
1. Voting rights 2. May receive dividends 3. Share in assets upon liquidation to the value of their shares |
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Preferred Shares |
A contract is signed with the purchase of preferred shares that gives the owner preference or priority over common shareholders 1. In terms of dividends 2. Assets in the event of liquidation
Do not have voting rights |
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Redeemable |
Gives the issuing corporation the right to purchase the shares from shareholders at specified future dates and prices Enables a corporation to eliminate the preferred shares when it is advantageous to do so Redeemable shares are also convertible |
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Retractable |
Like redeemable shares but shareholders can redeem shares at their option instead of the corporations Occurs at an arranged price and date |
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Callable |
Recall shares back and holders have to pay |
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Cumulative |
A sum that publicly traded companies must remit to preferred shareholders without regard to the company's earnings and profitability Must be paid, if not paid when due a company is responsible for paying it in the future
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Book Value |
The value of a security or asset as entered in a company's books |
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Dividends |
A sum of money paid regularly by a company to its shareholders out of its profits May be in the form of cash or shares |
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EPS |
Earnings per Share
Measures the amount of net income earned per share of stock or standings Also a calculation that shows how profitable a company is on a shareholder basis
Net income- preferred dividends/ number of common shares = EPS |
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Cash Dividends |
And equal distribution of cash to shareholders Must be paid to preferred shares before common shares
For this to occur a corporation must have: - retained earnings - adequate cash - declared dividends
Entries for cash dividends - declaration date - record date - payment date |
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Price Earnings Ratio Formula |
Market price per share/ earnings per share |
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Stock Dividends |
An equal distribution of shares between shareholders
Decrease in net income, increase in share capital
Changes the composition of share holders equity because of retained earnings
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Purpose of Stock Dividends |
Company: to satisfy shareholders dividend without spending cash, to increase marketability of shares
Shareholder: more shares which means more dividend income, more shares for future profitable sales |
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Stock Splits |
Involves the issue of additional shares to shareholders depending on their percentage of ownership
No effect on total share capital, retained earnings or shareholders equity |
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Disadvantages in a Corporation |
Corporation management- share holders don't have much say
Government regulations- can be costly
Income tax- initially taxed for net income and once distributed shareholders are taxed |
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Advantages of a Corporation |
Corporation management- professional board of directors
Separate legal existence- acts of owners don't bind to corporation
Limited liability of shareholders- owners only liable for investments
Income tax- can be reduced by corporations
Transferable ownership rights- ownership is easily exchanged with no effects
Ability to acquire capital- large corporations can acquire capital with more distribution of shares
Continuous life- if anyone does or leaves the corporation continues |
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Why do people buy preferred shares over common shares? |
More expensive but less volatile Buyers tend to hold on to shares for a long period of time But these shares in return for dividends |
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Effects of stock split |
Decrease in legal capital per share, book value per share
Increase in number of shares |
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Effects of stock dividend |
Increase in total share capital and number of shares
Decrease in retained earnings and book value per share |
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Effects of stock dividend |
Increase in total share capital and number of shares
Decrease in retained earnings and book value per share |
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Effects of cash dividend |
Decrease in total assets, shareholders equity, retained earnings and book value per share |
