D.2 Stockholder equity and operating leverage

Question 1

concept of demutalization and different classes of stock

Answer 1

• Common stocks available for trade
• “class B” private stocks - closed block reflecting the performance of the participating in force when Pru was a mutual company

Question 2

Stockholders equity

Answer 2

statement of stockholder equity

• contains additional detail to show how each item changed from year to year
• develops a ‘total comprehensive income’ that represents the net income to shareholders

Question 3

explain why market value of common stock != stockholder equity

Answer 3

• companies are worth more than book equity because book equity does not account for the value of future profits
• doesnt account for the actual MV of company assets

Question 4

determine dividend yield

Answer 4

dividend yield = divided per share / closing share price

Question 5

analyze balance sheet leverage

Answer 5

leverage = total debt / stockholder equity

-interpretation - how much the company borrows to finance its activities