Equities: Common Stock Flashcards
Equities- COMMON STOCK
Common Is Equity / Issued By Regular Corporations And Investment Companies
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1)A common stockholder is an. 2)Owners are considered to have an”? 3)issuers of common stock 4) can common stock be “called” by issuer
1- “owner” of a corporation
2-equity position in the corporate structure
3- Biz including investment companies 4)no
Equities- COMMON STOCK
Authorized Stock / Arbitrary Low Par Value
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1)When a corporation is formed, its corporate charter authorizes? 2)This is called what 3) stock is assigned a what value? 4) Can the par value be low, and why 5) what is a par of $0 6) par value have bearing on the market price of the stock 7) par value apply to to all stock [authrized, issued, outstanding, treasurey
1) fixed number of common shares to be issued 2)authorized stock 3) par 4) yes, many states tax corporations based on the par value of their shares 5) no par common stock 6) no, market value based on company’s future earnings and dividends 7) yes
Equities- COMMON STOCK
Issued Stock
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1) what is issued stock 2) Do corporation “issue” all of its authorized shares? 3) why not sell all shares 4) what is “outstanding stock”
1) shares that have actually sold to the public 2)no 3) ability to sell more shares at a later date without having to amend its corporate charter. 4)number of shares that are in the hands of the public
Equities- COMMON STOCK
Outstanding Shares / Treasury Stock - Repurchased Shares
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1) What is treasury stock 2) Why do corporation “buy back” shares that are trading in the market [4] 3) because fewer shares outstanding it does what to the market value and why 4)outstanding stock equation
1) firm “buy back” shares that are trading in the market
2)
-price is low and the corporation feels that the stock is a “good buy”
-repurchased, the number of outstanding shares is reduced. Because earnings per share is based on outstanding shares, with fewer shares outstanding, earnings per share will rise.
-The shares can be used to fund pension plan and stock option plan obligations.
-The shares can be used at a later date as “payment” for an acquisition or merger.
3)Since earnings per share will increase, the market value of each share of stock increases as well. 4)”Issued stock - Treasury Stock.”
Equities- COMMON STOCK
Treasury Stock Does Not Vote Or Receive Dividends
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1) Does Treasury receive dividends or vote?
1) no
Equities- COMMON STOCK RIGHTS OF A COMMON SHAREHOLDER ----------------------------- 1) what are the rights of a common shareholder? [6] 2)
1) -Right to vote
- Right to inspect books and records
- Right to transfer ownership
- Preemptive right [ability to buy more share before anyone else-therfore can maintain their proportinate ownership]
- Right to corporate distributions
- Right to corporate assets upon dissolution
Equities- COMMON STOCK
Voting
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2) CS vote where? 3) Vote for the board of directors, and how many each year up for reelection?
4) Vote to approve the issuance of convertible bonds? Why? 5) Do they vote on management or dividends, when is dividend paid? Who does? 6) items that require a shareholders vote [4] 7) Do voting rules vary from state to state? 8) The issue with voting to allow stock split or reverse stock split, does it change the market value of the stock 9) issue with voting to allow convertible 10) issue with voting to allow preferential stock options
2)company annual meeting 3)Yes, usually half 4) yes, because to allow would dilute ownership interest 5)no, the board. paid quarterly but not required
6-Declare a stock split;
-Declare a reverse stock split;
-Issue convertible bonds or preferred stock;
-Issue stock options to officers on a preferential basis.
7)Yes, 8) change the par value of the company’s stock, since the original par value established in the corporate charter, a change would require the board to approve. Although you have more shares, market value does not change 9)it dilutes, creates more common shares, reducing each existing shareholders ownership interest 10) offered to officers benefiting a small group of individuals and viewed as self-dealing.
Equities- COMMON STOCK
Voting [continued]
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1)Items that do not require shareholder vote [4]
2) can the board without shareholder issue cash and stock dividends [less than 25% of the outstanding stock]? 2.1 allowing this, does it affect the par value
3) shareholders vote on management decisions
4) basic idea on when shareholder would need to vote
1) - Declare a cash dividend; [paid with retained earnings]
- Declare a stock dividend;
- Declare a rights distribution (discussed later in this section);
- Repurchase shares for its Treasury
2) yes 2.1) no 3) no 4) vote required if it will effect par value
Equities- COMMON STOCK Voting [continued] ------------------------------------ 1) Each shareholder gets how many votes per share 2) What is proxy voting 3) Statutory voting 4) cumulative voting 5) between statutory and cumulative voting wich one is better for small investors and why
1) 1 [ own 100 shares, get 100 votes 2) shareholder cant attend annual meeting to vote, give power of attorney to someone else to stand in for them 3) 1 vote per share for each directorship [e.g. 100 shares held; 6 out of 12 Board seats up for election. 100 votes can be cast for each of the 6 directorships (600 votes total).] 4)cumulative voting: accumulated votes can be applied to any of the directorships [e.g. 100 shares held; 6 out of 12 Board seats up for election. The total number of votes to be cast is 6 x 100 shares = 600 votes. All 600 can be applied to 1 directorship; or 300 votes can be applied to 2 directorships; or 200 votes can be applied to 3 directorships, etc.] 5) cumulative, since a disproportionate voting weight is permitted
Equities- COMMON STOCK
Dividend Types
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1)Corporations can pay dividends in the form [3]
2) pay in form of options warrants or rights?
3)distribute tax credits as a dividend
1) -Cash
- shares of the company
- shares of subsidary company
- products of that company [rare]
2) no 3) no
Equities- Common Stock:
Rights of Common Shareholders: Liquidation
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1)if a corporation is dissolved, common shareholders are paid when
2) priority to assets upon dissolution [order of who get paid]
1) last, after other creditors
2) -secured creditors
- unpaid wages, taxes, and trade creditors
- debenture bondholders
- subordinated bondholders
- preferred stockholders
- common stockholders
Equities- Common Stock:
COMMON STOCK VALUATION
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1) the two methods to evaluate common stock
2) dividend or current yield compares what 3) dividend or current yield formula 4) Solve current yield ABC trading 16.50 has an annual dividend of $.52 5) general rule, mature or young companies have higher dividend yield?
6) Price/Earnings Ratio formula 7) solve $30, the company earns $2 per share. 8) What is it meant by “multiple is 15” 9)general rule, mature or young companies have higher multiple 10) The higher the “multiple,” the greater the stock’s price?
1) Dividend or current yield and P/E 2) current annual dividend rate to the current market price of the common stock 3) annual income/ market price 4) .32 5) mature, they do not have great growth prospects
6) stock price divided it by earnings per common share. 7) 15 8)company is trading at a price that is 15 times current earnings 9) Growth companies tend to have high multiples 10) yes
