Equity Securities Flashcards
Order of Liquidation
Unpaid workers
The Internal Revenue Service (IRS)
Secured creditors (Secured creditors have issued loans that are secured with collateral, bonds, and so on).
General creditors General creditors have issued unsecured loans,
Subordinated debentures (Subordinated debentures are junior unsecured bonds, and holders of subordinated debentures are the last creditors to be paid in the event of corporate bankruptcy. )
Preferred stockholders Common stockholders
Statutory Voting
Split votes evenly among the number of candidates on board
Cumulative Voting
Use all available votes for one candidate.
Proxy Votes
- Transfer Agent responsible for sending out proxy vote ballots.
- Proxy Fight: grouping ballots
Authorized Shares
the number of shares of stock that a corporation can issue.
The issuer usually holds back a large percentage of the authorized stock, which it can sell later as needed through a primary offering.
Issued Shares
Amount of shares sold to the public including founding shareholders
Unissued Shares
May be kept up to 3 years
Outstanding Shares
number of shares in the investors hands.
Outstanding = Issued - Treasury
Treasury Stock
shares repurchased by the company.
Par Value of Common Stock
Bookkeeping value (set at time of issue). Market price is usually different.
Amount over Par Value
additional paid-in capital, paid-in surplus, or capital surplus.
Tender Offer
Takeover bid. Corporation, person, or group. Usually announced in a public communication and offering a premium to the current market price.
Tender offers are good for a specified period, and a minimum number of holders of shares (in other words, holders of more than 50 percent of the outstanding shares of the target corporation) must agree; otherwise, the offer is canceled.
Exchange Offers
Sometimes, a corporation decides to exchange some of its securities for other ones. A corporation may offer its bondholders the right to exchange certain debt securities for stock to reduce the corporation’s debt.
Acquisitions
For one corporation to acquire another, it must obtain majority ownership of the target corporation.
Round Lot
Typically 100 shares of stock
Reverse Split
Alternatively, companies may use a reverse split, consolidating shares to raise the price of the stock and perhaps keep the price of their stock from dropping too low and possibly face being delisted.
Forward Stock Split
Number of shares increases and the price decreases.
Use the following calculations to figure out an investor’s position after an A-for-B split:
Reverse Stock Splits
In a reverse split, the market price of the security increases, and the number of shares decreases.
In the event of a reverse split, investors usually have to send their old shares to the transfer agent to receive the new shares.
Dividends
each shareholder is entitled to a pro rata share of dividends, meaning that every shareholder receives an equal proportion for each share that she owns.
Investors can’t vote on dividends. Just board members.
Stock Dividends
Just like forward stock splits. More shares.
Stock Dividends are not taxable.
A way to make stock more attractive and available. Liquidity
Preferred Stock
Although preferred stock (sometimes called preferreds) has some characteristics of both equity and debt securities,
No voting rights (unless they don’t receive their dividends)
By contrast, issuers of preferred stock are required to pay consistent cash dividends. Preferred stock generally has a par value of $100 per share (although it could be $50, $25, and so on) and tends to trade in the market much closer to its par value than common stock does.
Preferred Stock Dividend
The dividend (sharing of profits) that preferred stockholders receive is based on par value.
To calculate the annual dividend, multiply the percentage of the dividend by the par value.
If the Preferred Stock is cumulative, the owner of stock is due missing dividends.
Non-Cumulative Preferred Stock
Not owed a dividend in arrears if missed.
Cumulative Preferred
More common.
Convertible Preferred
Convertible preferred stock allows investors to exchange their preferred stock for common stock of the same company at any time.
The conversion ratio helps you determine a parity price at which the convertible preferred stock and common stock would be trading equally.
Callable Preferred
Callable preferred stock allows the issuer to buy back the preferred stock at any time after a defined date at a price (the call price) on the certificate.
Participating Preferred
Although it’s rarely issued, participating preferred stock allows investors to receive common dividends in addition to the usual preferred dividends.
Prior (Senior) Preferrred
senior preferred stockholders receive compensation even before other preferred stockholders.
Adjustable (floating Rate) Preferred
Holders of adjustable preferred stock receive a dividend that’s reset every six months to match movements in the prevailing interest rates.
American Depository Receipts (ADR)
receipts for foreign securities traded in the United States. ADRs are negotiable certificates (they can be sold or transferred to another party) that represent a specific number of shares (usually, one to ten) of a foreign stock.
RIGHTS
The right to by new stock at a set discount.
allow existing stockholders to purchase new shares of the corporation at a discount directly from the issuer, before the shares are offered to the public. Stockholders receive one right for each share they own.
The rights are marketable, and stockholders may sell them to other investors.
investors. If existing stockholders don’t purchase all the shares, the issuer offers any unsold shares to a standby underwriter: a broker–dealer that purchases any shares that weren’t sold in the rights offering and resells them to other investors.
WARRANTS
The right to buy common stock at a set price.
Warrants are certificates that entitle the holder to buy a specific amount of stock at a fixed price and are usually issued along with a new bond or stock offering.
Have no voting rights and receive no dividends.`
UNITS
Bundled bonds and warrants or bundled stock and warrants are called units. Unlike rights, warrants are long-term and sometimes perpetual (without an expiration date).
Ex-Dividend Date
(the first day the stock trades without a dividend).
