Chapter 3 Equities Flashcards
Which two things are need to form a company?
Memorandum of Association
Articles of Association
What are the two types of companies?
Private companies - LTD (Can have only one shareholder)
Public Companies - PLC (Minimum of two shareholders)
What percentage is required for a special resolution?
75%
Describe an Ordinary Share
This type of share carries the full risk and reward of investing in a company.
Name three ‘normal’ elements of preference shares:
Non-Voting
Pay a fixed dividend
Rank ahead of ordinary shares in terms of being paid if the company is wound up
What is the primary market?
Raising capital through issuing shares for the first time.
What is the secondary market?
Buying and selling of listed (quoted) shares on exchanges (OTC)
Define bid and offer.
Bid: Price the market is willing to buy a share
Offer: Price where market is willing to sell a share
True or False : The bid is always lower than the offer.
True
True or False : The tighter the spread the more liquid the stock.
True
A weak market is known as a what market?
Bear
A strong market is known as a what market?
Bull
How is dividend yield calculated?
Dividend divided by market cap x100
In what scenario are shareholders offered the chance to greater increase their shares? (UK Law)
A rights issue.
What are the three types of corporate action?
Mandatory (mandated by company, meaning no shareholder intervention e.g. dividends)
Mandatory with options (e.g. a rights issue)
Voluntary (requires the shareholder to make a decision, e.g. takeover bid)
What are the three options when a rights issue occurs?
Take up the rights
Sell the rights to another investor
Do nothing
What is a bonus issue?
A business giving every shareholder an extra share for each pair they own. E.g. £30 owning 2 shares, means £30 now owns 3 shares.
What is a dividend cut-off?
Essentially the cut-off date for when a dividend can actually be claimed once a stock has been bought. Stock price dips in accordance with this at times.
What does M&A stand for?
Mergers and Acquisition.
What four things can a business do when it is seeking a listing for its shares?
Become listed or quoted
Floated on the stock market
Go Public
Make an IPO (Initial public offering)
What are the advantages of listing?
Raising capital, along with offering a way out for shareholders.
Takeovers, listed companies can use shares as payment to acquire the shares of other companies as part of a takeover or merger.
Status, helps market business to customers, suppliers and employees.
Employees, stock options are a key way of incentivising staff to stay at the business.
What are the disadvantages of listing?
Regulation, listed companies have to govern themselves in a more open way.
Takeovers, listed companies are at risk of being taken over.
Short-termism, shareholders of listed companies focus on short-term goals.
Which two things are required to be listen on the LSE?
The company must be a PLC
The company must have a market cap of over £30M.
Name 3 stock market indices (indexes)
NASDAQ Composite
S&P 500
Dow Jones (DJIA)
FTSE 100
CAC 40
Xextra DAX
Nikkei 225
