Chapter 4: Equities Flashcards
What is the major reason for a company to issue shares?
The major reason for a company to issue shares is to raise finance.
What is an initial public offering (IPO)? (2)
1) When a company first makes its shares available to the public
2) When the company becomes listed on a stock exchange
In what two ways can an investor in company shares expect to see a return?
1) Dividends
2) Capital Gain
What are dividends?
How often are they paid?
What determines the amount of dividend paid? (2)
Dividends are the regular ongoing income that a shareholder may receive.
Many listed companies pay dividends every quarter or every half year.
The amount of dividend paid is determined by management and driven by two things:
1) Profitability
2) Expectation
Give the two ways in which dividends can be expressed.
What is the dividend yield?
Dividends are usually expressed both in absolute terms, such as 99 cents per share and as a percentage of the share price.
When expressed as a percentage of the share price, the resultant figure is described as the dividend yield.
A bigger dividend yield means a greater percentage of the share price is being paid to investors.
Give four features of company meetings or assemblies.
Company meetings or assemblies:
1) Are meetings to which all of the shareholders are invited.
2) Are generally required to be held at least annually.
3) The executives including the Chief Executive provide an update on company performance and are available to be questioned.
4) Provide the opportunity for the owners of the company to vote on significant matters.
What are the risks faced by shareholders? (2)
1) Not receiving dividends if the company is unable to pay them due to poor performance.
2) In the event of collapse, it will be the lenders that get paid their money first, so the shareholders could see the value of the shares fall to zero.
