Pre-Study: What Are Equities? Flashcards
Equity
Owning shares of stock in a publicly traded company.
How does equity relate to stock?
Investors are the owners of the company, and equity is demonstrated by the shares of stock they own.
Why do companies issue stocks?
Why would investors want to buy stock?
Capital Appreciation
Dividend Payments
Ability to vote shares and influence the company
What risks should investors be aware of when investing in stocks?
What factors can affect the price of a stock?
Dividends
A share of a companies annual profits
Shares
Market Price
The market’s appraisal of the worth of that company at a particular point in time. Price changes are driven by objectively measurable changes in business conditions, the economic environment, and changes in investor emotion.
Capital Appreciation
When a stock rises in price
Stock
Stock represents ownership of a company. Stock may be issued by any company, public or private, but for an individual equity portfolio investor only public companies are important.
Shares of Stock
Represent the ownership of portions of the future earnings potential of the firm. Also referred to as equities.
Public Company
Any company whose shares may be bought and sold using regulated brokers, exchanges, and public trading networks. They must adhere to legal requirements for governing themselves, and must publish periodic reports on their finances.
Private Company
Has it’s own set of governance and reporting requirements, does not have to reveal it’s finances on demand to outsiders, and cannot issue tradable equity securities.
Common Stock
Shares representing an equity stake in the firm. Companies may issue multiple classes of common stock, usually done to limit number of shareholders with influence over corporate governance.
Common Shareholder
Owner of common stock. They can only receive dividends after all bondholders receive their interest payments, and other investors and creditors receive what they are due. They generally have the right to vote in board elections.
Preferred Stock
Shares that give their holders a higher claim on any profits or proceeds from asset sales. Does not represent a company debt, but is a fixed claim on future profits.
Preferred Shareholder
Owner of preferred stock. Shareholders receive dividends after bondholders but before common stockholders. Generally do not have any voting rights
Restricted Stock
Generally represents the holding of active employees who earned the shares through incentive or employee programs.
Restricted Stockholder
Owner of restricted stock. These shares generally have rights to dividends and distributions, but may be forfeited if regulations are not followed.
Price-to-earnings ratio
Derived by diving the stock price by the company’s earnings per share. Used to determine what an investor is paying for the earning power of the company.
Dividend Yield
Determined by dividing the amount of the dividend by the share price. Indicates what percent return the company is paying its investors.
Payout Ratio
Represents the percentage of earning a company is paying out to it’s investors. Indicates what portion of the earnings are being reinvested into the growth of the company.
Company Categories
Primary Business Focus
Size
Level of Business Maturity
