Chapter 9: Equity Securities Flashcards
What does leveraged mean?
Has some debt in its capital structure
What is capital structure?
Company’s composition of debt and equity capital
What represents an ownership interest in a company or similar legal entity?
Common share
Which kind of shareholder has voting rights?
Common
Which kind of owners will receive dividends before common shareholders?
Preferred
What is capital structure priority of claims?
Debt, preferred, common
What is limited liability?
Higher claimants particularly debt investors cannot recover money from personal assets of shareholders of company’s assets are insufficient to fully cover their claims
What is par value?
Stated value or face value of equity security
What is main type of equity securities?
Common stock
What is a security representing an economic interest in a foreign company that trades like a common stock on a local stock exchange?
Global depository receipt
What kind of bond issued by a company that offers the bond holder he right to convert the bond into a pre specified number of common shares?
Convertible bond
What is an equity like security that entitles the holder to buy a pre specified amount of common stock of the issuing company at a press specified stock price, called the exercise price or strike price, prior to a pre specified expiration date?
Warrant
What is market risk or risk created by general economic conditions that affect all risky investments?
Systematic
What is company specific risk associated with investing in a particular company or security?
Unsystematic
What is valuation approach that takes into account the time value of money?
Discounted cash flow
What approach estimates value of common share by using multiples based on prices and some other measure for publicly traded, comparable equity securities?
Relative valuation
What is price to earnings ratio?
Ratio of company’s stock prices to its earnings per share
What approach estimates value of common equity by calculating difference between a company’s total assets and it’s outstanding liabilities?
Asset based valuation
What is rights offering?
Existing shareholders receive preemptive rights to purchase new shares
What replaces one existing common share with a specified number of common shares?
Stock split
