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CSC course- FIP > ch.8 > Flashcards

ch.8 Flashcards

1
Q

Common shares

A

-OWNERS OF COMPANY
-INITIALLY PROVIDE EQUITY CAPITAL TO START THE BIZ
○ If business proper’s- shareholders also prosper

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2
Q

Summary of C/S

A

○Last priority if company liquidated
○ Dividends not guaranteed
○ shares registered in “street form: name of securities firm instead of beneficial owner (makes them more readily transferable to new owner)

○ Trading units: stocks trade in lot sizes on stock exchg
§ Standard trading unit: regular unit that has uniformly been decided upon by the exchages

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3
Q

Benefits of C/S ownership

A

○ CAPITAL APPRECIATION
○ Right to receive c/s and dividends paid by company
○ Voting rights
○ Favourable tax treatment of dividend income and capital gains
○ Marketability

Limited liability

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4
Q

C/S-Capital appreciation

A

§ C/S may increase in value as Retained Earnings increase the size of shareholders equity, makes stock more attractive

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5
Q

C/S- Retained earnings

A

earnings kept within the company rather than paid out

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6
Q

C/A- dividends

A

○ Company net earnings available for distribution as dividends, OR may be retained within company and reinvested in business or BOTH

*NOT CONTRACTUAL OBLIGATION

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7
Q

REGULAR DIVIDEND

A

specified amount that will be paid each year

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8
Q

EXTRA DIVIDEND

A

bonus paid in addition to regular pmt, not to assume pmt will happen all the time

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9
Q

EX DIVIDEND

A

purchaser of these shares does not receive dividend that has just been declared.

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10
Q

DIVIDEND RECORD DATE

A

all s/h recorded on this date entitled to dividend

○ To determine if seller or buyer gets dividend when sales takes place

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11
Q

EX DIVIDEND DATE

A

on or after this day, stock sells without dividend–seller retains dividend right
® If buy stocks on day of ex-div. does not get div. declared

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12
Q

CUM DIVIDEND

A
  • comes WITH dividend

- if bought day before ex-div date

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13
Q

AUTOMATIC DIVIDEND REINVESTMENT PLAN

A

company automatically purchases additional shares in company with owners dividends from thE company.

® b/c purchases made regularly, s/h can reduce avg cost paid per unit (dollar cost averaging)
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14
Q

STOCK DIVIDENDS

A

§ Dividend in form of additional stock, not cash

§ Paid by rapidly growing company that needs to retain high degree of earnings to finance future growth

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15
Q

C/S VOTING RIGHTS

A

shareholders exercise rights as owners to control destiny of corporation
○ Elect directors who guide / control business
○ Sale, merger/liquidation of business and amendment of charter- need shareholder approval

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16
Q

RESTRICTED SHARES

A

give shareholders right to participate to unlimited degree in earnings of company and assets on liquidation BUT not full voting rights

3 TYPES:

  1. NON VOTING
  2. SUBORDINATE VOTING
  3. RESTRICTED VOTING
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17
Q

Non voting rstricted shares

A

no right to vote, except maybe in limited circumstances

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18
Q

SUBORDINATE VOTING

A

right to vote if another calss of shares with greater voting per share

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19
Q

RESTRICTED VOTING

A

carry right to vote, subject to a limit/restriction on the number and % of shares that may be voted by a person

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20
Q

TAX BENEFITS FOR C/S

A

○ Dividend tax credit (ALLEVIATE DOUBLE TAXATION)
○ Capital gains exemption of 50%

STOCK SAVINGS PLANS:

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21
Q

STOCK SAVINGS PLANS

A

entitle residents of some prov’s to deduct up to specified annual amounts (or tax credit) the cost of certain stocks purchases in respective prov’s I the year

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22
Q

C/S? DIVIDENDS FROM TAXABLE CANADIAN CORP

A
  • interest on debt, interest paid with company’s pre-tax dollars b/c interest considered tax deductible cost of doing business
  • dividends on shares, dividends paid with after tax dollars b/c dividends not tax deductible cost of doing business
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23
Q

C/S? TAX ON FOREIGN DIVIDENDS

A

• Individuals that get dividends from NON Canadian sources usually get net amount from sources (taxes deducted at source)

24
Q

C/S? capital gains/ capital losses

A
  • C/G arises from the sale (or deemed sale) of capital property for more than it costed.
  • Capital loss arises from sale of capital property for less than its cost.
  • 50% INCL IN INCOME
  • Capital losses- reduce any capital gains, cannot be used to reduce any other Income
25
Q

stock split/subdivision

A

brings high yield priced stock into rage or consolidation, to bring low priced stock more atractive

26
Q

STOCK SPLITS

A
  • Split itself does not affect dollar value of company equity, nor proportion and value of s/h stake
  • Equity /share reduced (#) , but equity section ($) of stmts of financial position doesn’t change
27
Q

REVERSE SPLIT/ CONSOLIDATION

A

○ DONE If:
○ market price of shares too low
○ Used when company in danger of being delisted on stock exchange b/c share price below exchanges min share price rule
○ Total shareholding in company reduced
○ Raises market price of the new shares
○ put company in better position to raise capital

28
Q

LISTED

A

TRADED ON STOCK EXCHANGE

29
Q

UNLISTED

A

TRADES O OVER THE COUNTER MARKET

30
Q

PREFERRED SHARES

A

DEFINITION: ?

usually entitled to a fixed dividend payment

31
Q

PREFERENCE SHARES

A

generally hold same meaning as p/s, rank ahead of the different

32
Q

P/S PREFERENCE AS TO ASSETS

A

○ Usually given a prior claim to assets ahead of IF bankruptcy or dissolution of a company
○ Creditors and debt holders rank ahead of p/s

33
Q

P/S PREFERENCE AS TO DIVIDENDS

A

○ Entitled to a fixed dividend expressed as either a % of the par or stated value, or as stated amount of dollars and cents
○ Dividends not obligatory

34
Q

WHY ISSUE P/S INSTEAD OF DEBT?

A

○ Not feasible for it to market new debt issue
○ Market conditions temporarily unreceptive to new debt issues
○ has enough short and long term debt o/s (debt/equity ratio high)
○ legal obligations to pay interest and principal

Directors decide paying dividends will not be to expensive

35
Q

WHY BUY P/S

A
  • Bought largely by income oriented investors
  • Conservative investor– seeking income, take advantage of dividend tax credit

Institutional investors– attracted to preferential tax treatment

36
Q

P/S FEATURES

A 
• CUMMULATIVE: arrears
	• NON CUMMULATIVE: NO ARREARS
	• Callable
	• Non callable
	• Non voting
-PURCHASE FUND
SINKING FUND
37
Q

PURCHASE FUND

A

if price of shares declines in market to or below stipulated price, fund tries to buy specified amts of shares for redemption

38
Q

SINKING FUND

A

attempts to retire shares in open market when shares trade at/below stipulated price

39
Q

TYPES OF P/S

A
  • STRAIGHT PREFERREDS
    • CONVERTIBLE PREFERREDS
    • RETRACTABLE PREFERREDS
    • FLOATING RATEPREFERREDS
    • FOREIGN PAY PREFERREDS
    • OTHER: participating, deferred
40
Q

STRAIGHT PREFERREDS

A
  • normal preferences as to asset and dividends ahead of c/s
    • fixed dividend
    • If interest rates rise, dividend pmt less valuable and vice versa
    • Greater safety than c/s
    • Tax advantage– dividend tax credit
    • No voting privileges OR maturity date
    • Poorer marketability than C/S
    • Limited appreciation potential compared to c/s
41
Q

CONVERTIBLE PREFERREDS

A
  • Similar to convertible bonds and debentures
    • Enable holder to convert p/s to other class of shares (c/s) at predetermined price, for stated period of time

sell at premium above price its expected to sell at

• Sometimes convert in to less(or more) than standard trading unit of c/s
42
Q

RETRACTABLE PREFERREDS

A
  • Can force company to buy back retractable preferred for cash on specified dates and Prices
    • Can create maturity date for the preferred by exercising retraction privileges and tendering shares to issuer for redemption

Shorter time interval to retraction date= less vulnerable

retractable p/s will not fall significantly below retraction price as retraction date approaches

capital gain if purchased at discount from retraction price

43
Q

FLOATING RATE P/S

A

• Pay dividends in amt that fluctuate reflecting changing interest rates

Rates rise= dividend pmts rise

• For purchaser:

Higher income if rates rise

44
Q

FOREIGN PAY PREFEREDS

A

Create and issue preferred with dividends and certain other features payable in or related to foreign funds

• Key factor to selecting foreign pay p/s is desirability of receiving dividends in curency other than Canadian funds
• Risk: curency risk
	○ Foreign currency increases, dividend will increase

Canadian dollar increases, dividend will decrease

45
Q

OTHER TYPES OF PREFERREDS: PARTICIPATING PREFERRED

A

have certain right to a share in the earnings of company over and above specified dividend rate

46
Q

OTHER TYPES OF PREFERREDS: DEFERRED PREFERRED

A

doesn’t pay regular dividend

On maturity date, diff between purchase price and redemption value = dividend premium

47
Q

DIVIDEND PREMIUM

A

cumulative amount equal to dividends that would have been rec’d if purchased p/s paying regular dividend

48
Q

STOCK INDEXES

A

Stock indexes or averages are indicators used to measure changes in a representative grouping of stocks

• Gauge overall performance and directional moves in the stock market

Enable portfolio mgr and investors to measure portfolio’s performance

Value weighted and derived by using total market value (i.e market capitalization) by multiplying current price X number of shares o/s

49
Q

STOCK AVERAGE

A

arithmetic avg of the current prices of a group of stocks designed to represent overall market or some part of it

weight based on stocks total market capitalization

50
Q

CANADIAN MARKET INDEXES

A

§ s&p/tasx composite index
§ s&p/tsx 60 index
§ s&p/TSX venture composite index

51
Q

U.S STOCK MARKET INDEXES

A

§ The DOW jones Industrial Average (DIJA)
§ S&P 500

  • The NYSE composite index
  • NYSE mkt composite index
  • NASDAQ composite index:

Value line Composite Index:

52
Q

INTERNATIONAL MARKET INDEXES AND AVERAGES

A
  • NIKKEI stock average (225) price index: tokyo Stock Exchange Average
    • FTSE 100 Index:London Stock exchg,
    • The DAX: German Securities
    • CAC 40 indexparis stock exhange

Swiss market Index

53
Q

The s&p/TSX composite index

A

§ Measures changes in total market capitalization of the stocks in the index

§ Index created for each sector + 3 subsector indesxes, specific to cdn market:
	□ Diversified mining
	□ Real estate 
	□ Gold
54
Q

The s&p/TSX 60 index

A

§ 60 largest companies that trade on the TSX as measured by market capitalization

55
Q

The s&p/TSX venture composite index

A

§ Canadian benchmark index

Market capitalization based index meant to provide indication of performance for companies listed on TSX venture exchg

56
Q

The DOW JONES Industrial average (DIJA)

A

○ Most publicity given to trading performance of 30 issues that make up the Dow jones Industrial Average (DIJA)

		§ Not true representative indicatior of broad market activity (too few companies incl in average)
57
Q

• The S&P 500

A

○ Based on large number of industrial stocks, some financial stocks, some utility stocks, and a smaller number of transportation stocvks, that are weighted in index by market capitalization

CSC course- FIP (11 decks)

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