Equity Flashcards
Irredeemable Preferred Shares
No specific maturity date
Redeemable Preferred Shares
Company can or is obliged to buy back after a certain period
Cumulative Preferred Shares
Dividend accumulation occurs if the company doesn’t declare dividend in any given year
Non-cumulative Preferred Shares
If dividend is not declared by the company for a particular period, the right to receive the dividend lapses
Fully participating Preferred Shares
Holders are entitled to a fixed dividend and can participate in additional dividends beyond their fixed percentage; surplus dividends are distributed on a pro rata basis
Partially Participating Preferred shares
Holders are not entitled to a fixed dividend but also have the right to participate in additional dividends after their fixed percentage; surplus has a cap
Convertible preferred shares
gives the holders the right to convert to common stock at any time after a predetermined date; conversion rate set at issuance
Callable preferred shares
gives the issuing company the right but not the obligation to repurchase the shares at a predetermined price after a specified date
How are irredeemable preferred shares presented in financials?
Equity - no fixed redemption date and not expected to be repaid within the foreseeable future
How are redeemable preferred shares presented in the financials?
Liability - have a fixed redemption date and must be redeemed in the foreseeable future
Why would a stock subscription be issued?
When a larger amount of capital is being raised which provides time for investors to accumulate the funds needed
When would a rights issue be used?
publicly traded company raises additional capital from its existing shareholders by offering new shares at a discount to market price
Stock split
increase the number of shares outstanding while proportionally reduce the price of each share without altering the total market capitalization
how would a 2 for 1 split of a company with 1,000 shares of $10 par value common stock account for the split?
Dr. CS (1,000 x 10) 10,000
Cr. CS (2,000 x 5) 10,000
Reverse stock splits
reduces the number of shares outstanding and increases the price per share which makes the stock more appealing to institutional investors and helps the company avoid delisting if its stock price falls below a certain level
