Chapter 11- Shareholders' Equity Flashcards
Significance of SE
- share ownership is very common
- on F.S
- equity financing
- impact of earnings on share valuation
Components of SE
- share capital
- retained earnings
- accumulated other comprehensive income
- contributed surplus
Share Capital
- amount received from investors on the initial issuance of a company’s shares
Retained Earnings
- company’s accumulated earnings that have not been distributed as dividends
Accumulated Other Comprehensive Income
- includes unrealized gains and loses resulting from revaluations rather than from transactions with third parties
Contributed surplus
- from sale or repurchase of a company’s shares or from the issuance of stock options
Authorized shares
how many shares a company is allowed to give out
- private company’s = unlimited
Issued and outstanding shares
shares that have been sold by the company
Treasury shares
shares that are repurchased by the company
- public companies, not entitled to dividends
Types of shares
1, common 2, preferred
- with multiple classes of shares it makes it easier for companies to raise capital
IPO- Initial Public Offering
first time a company issues shares @ public stock exchange
Common Shares
- Help grow company
- Typical basic voting
- Not a fixed rate
- right to receive dividends
Preferred Shares
- usually non-voting
- entitlement to dividends, fixed rate
- before common shares
- they may be: redeemable, retractable, convertible, cumulative, participating
Dividends
- company must have cash or Retained Earnings to pay dividends
Cash dividends
entitle shareholders to cash payments and most common type
Stock dividends
entitle shareholders to receive additional shares rather than cash, increase marketability of shares
Stock split
happens when a company issues additional shares to existing shareholders at a specified ratio w/o affect on retained earnings
- lower share price in market
Equity financing
- using shares instead of debt in order to finance an investment
