Lesson 1 Flashcards
Stakeholders in a company:
Managers
Employees
Suppliers
Customers
Creditors
Regulatory agencies
Community
Factors that can affect stock prices
Nature of business
Maturing obligations
Investing decision
Is a shared responsibility of the board of directors and all the top managers in a company including the president and all the vice pres
Shareholder’s wealth maximization
Links the savers and the users of funds
Financial system
Can come from households, individuals, companies, government agencies, or any other entity whose cash inflows are more significant than their cash outflows.
Savings
Ex of financial intermediaries:
Banks
Insurance Companies
Stock exchange
Stock brokerage firms
Mutual funds
Other financial institutions
Offers facilities for the trading of shares of publicly listed companies
The Philippines Stock Exchange (PSE)
Corporate bonds and government debt securities can be traded through the “ “
Philippine dealing and exchange corp (PDEx)
The original issuance of a financial instrument, equity or debt security, is called a “ “
Primary issue
A financial market that deals with shirt term borrowing
Money market
Deals with long term sources of financing
Capital market
Investing in the stock market has to be coursed through “ “
Stock brokerage firms
Types of brokers:
Online brokers
Live brokers
With “ “, one can trade in stock market through the internet
Online broker
With “ “, one needs a telephone to call brokers and place orders
Live brokers
Provides opportunities for big and small investors to invest in financial instruments which they would not have considered on their own, or they may have considered but do not have the time or expertise to do it
Mutual funds
Funds are invested by professional managers for a fee
Mutual funds
There are mutual funds that are limited only to stocks
Equity funds
Restricted to fixed income instruments like bonds and treasury notes
Bonds funds
Provide a combination of both stocks and fixed income instruments
Balance funds
To invest in a mutual fund, he/she has to buy shares of a mutual fund, and the buying prices depends on what?
Net asset value (NAV)
Note that the net asset value (NAV) of a mutual fund changes “ “ as the value of the financial instruments where the fund is invested also changes
Every day
Other financial institutions includes:
Government Service Insurance System (GSIS)
Social Security System (SSS)
Unit Investment Trust Fund (UITF)
Financial instruments are generally classified into two major categories:
Equity securities and debt securities
Include ordinary shares or common stocks and preference shares or preferred stocks
Equity securities
Include treasury bills, treasury notes, retail treasury bonds, and corporate bonds
Debt securities
Ordinary shares
Preference shares
Equity securities
Treasury bills
Treasury notes
Retail treasury bonds
Corporate bonds
Debt securities
Has priority over an ordinary share in terms pf claims over a company’s assets
Preference shares
Are the real owners of the company
Common shareholder
What is PSEi
The Philippine Stock Exchange Index
It must be noted that investment in “ “ is riskier because returns are not guaranteed
Equity securities
The dividend per share of “ “ is not fixed
Ordinary share
A company is not obligated to pay dividends if it is not in a position to do it. Korique or nah?
Korique
For cumulative preferred shareholders, unpaid dividends cannot accumulate. T or F?
False.
For cumulative preferred shareholders, unpaid dividends CAN accumulate
No cash dividends will be paid to common shareholders unless all the dividends in arrears due to preferred shareholders are paid first. T or F?
True
Being the residual owner of a company, prefferes shareholders have voting rights, a privilege that is generally not available to common shareholders. T or F?
False
Being the residual owner of a company, COMMON shareholders have voting rights, a privilege that is generally not available to PREFFERED shareholders
COMMON shareholders=?
Real owners of the company/residual owner
Growth potential of their investment is unlimited=?
Common shareholders
Have priority over ordinary shareholders in cash dividend declaration
Preferred shareholders
Are debt financial instruments that are traded in the secondary markers through PDEx
Debt securities
Debt securities issued by the government
Treasury bonds
For treasury bonds, coupon interest is paid “ “
Semi anually
It offers slightly higher interest rates than government securities
Corporate bonds
In terms of claims over a company’s assets, “ “ have priority over preference and common shares
Bond holders
Explain why the same company came be a saver and a user of funds
Ex.
A company has to open a bank account, especially a current account or a checking account, to start a business. In doing business, a company has to deposit cash to a bank, which is financial intermediary. When the business has grown, this company may need to borrow funds to support an increasing volume. When a company borrows, it becomes a user of funds. In this case, this company is both a depositor and a borrower
What is the roles of financial intermediaries in the financial system?
Financial intermediaries serve as middlemen for transactions, generally between banks or funds. These intermediaries help create efficient markets and lower the cost of doing business.
It creates a market for saving and lending by indirectly matching savers and borrowers
What is the role or function of yhe PSE
Provide and ensures a fair, efficient, transparent and orderly market for the buying and selling securities
What is debt securities
Financial assets that define the terms of a loan between an issuer (the borrower) and an investor (the lender)
The highest policy making body in a corporation
Board of directors
Who elected the directors?
Shareholder
Who helps the board of directors and the top management set policies regarding a company’s capital structure?
VP for finance
What are the two conditions before a company can declare cash dividends?
Must have retained earnings to support cash declaration
Must have cash
Factors considered in declaring cash dividends:
Availability of investment opportunities
Capital structure
Access to long term sources of funds
