LM 4: Overview of Equity Securities Flashcards
What are 2 ways companies can finance operations?
issuing debt or equity
What are common shares?
Common shares: represents an ownership position, get residual claim
What is the difference between statutory voting and cumulative voting?
statutory voting grants one vote for each share owned
cumulative voting allows shareholders to get more than one vote, vote amount based on how many board directors they’re voting for.
What is cumulative preference shares?
any dividend payments that have been missed in the past, must be paid out to cumulative preference shareholders first.
What is non-cumulative preference shares?
type of preferred stock that doesn’t pay stockholders any unpaid or omitted dividends.
What is participating preference shares?
receive dividends, surplus profits if profits exceed a specified amount, and receive additional distributions over face value in event of liquidation.
What is non-participating preference shares?
no compensation beyond fixed dividend payments and claim for face value in event of liquidation.
What is a convertible preference share?
a type of preferred share that pays a dividend and can be converted into common stock at a fixed conversion ratio after a specified time.
What are 3 types of private equity investments, describe them? VLP
- venture capital (provide start-up capital)
- leveraged buyouts ( investors raise large amounts of debt to purchase all of a public company’s outstanding common stock.)
- private investments in public equity. (the purchase of publicly traded stock at a price below the current market value (CMV) per share.)
LBO and MBO work well for companies that have…
undervalued assets and high cash flows to support debt obligations
What are 2 methods to invest in non-domestic equity securities?
- direct investing
- depository receipts (DR)
What is the difference between sponsored DR & unsponsored DR?
Sponsored DR: Issued directly by the foreign company and investors receive the same dividends and voting rights as other common shareholders.
Unsponsored DR:foreign company no involvement. depository bank purchases company’s shares, issues DRs, and retains the voting rights.
What are global depository receipts (GDR’s)?
issued outside the company’s home country, usually on exchanges in London or through private placements but not US exchanges (but in US denomination)
What is an American depository receipts (ADR’s)?
receipts in foreign companies that are held by US depositary banks and can be traded in the US, including on US major exchanges
What are American Depository Shares (ADS’s)
the underlying securities for American depository receipts, traded in company’s domestic market