Raising Capital Flashcards
A commercial bank provides services such as:
- checking and savings accounts
- Business loans
- car loans
- mortgages
- money orders
- safe deposit boxes
An Investment banks are not really banks, but rather Financial Institutions which provide
… financial advice to corporations on topics such as IPO, getting backing through issuance of bonds, etc
Steps when prepping for an IPO:
- Hire an Investment bank
- Shelf Registration with SEC
- Prepare Prospectus
- Put on Road Show
When do you need to provide info for Shelf Registration with SEC
At least 30 days in advance of the offering
SEC will confirm ___ with the shelf registration
that company is not a fraud
the Prospectus lists:
- what IPO price you expect as a range
If shares are OVERSUBSCRIBED that means
there are more potential investors interested in purchasing then are offered for public purchase»_space; indicates price can be on the high range
3 types of shares in an IPO
- Authorized
- Issued
- Outstanding
Authorized Shares are
the amount of shares the SEC allows company to issue for IPO
Issued Shares are
the amount of shares company decides to issue
Outstanding shares are…
Balance of shares that actually go to market in an IPO, the company normally retains some of the issued shares
Market value of a stock is typically ____ than book value
much higher
Outstanding dividends that the company owes shareholders are called…
Dividends in Arears
Why is book value not a good overall measure for a company’s valuation?
relies on historical value and not current value
Lessons Learned from 1929 crash
- Glass Steagall (1934)
- Establishment of SEC
- Establishment of FDIC
- Establishment of Social Security Administration
- Increase margin trading from 5% in 1929 to 50% now
FDIC insures up to
Federal Deposit Insurance Corporation
Insures up to $250k/account/bank
A stock could be delisted when…
It’s value on the NYSE is below $1.00 for over 30 consecutive days
Paid in Capital (Common Stock) =
= IPO Price - Par Value
ex. $22 - $0.01 = $21.99
Value belonging to shareholder
Paid in Capital is also called…
- Premium from Common Stock
- Excess in Par
- Capital Surplus
Why do companies buy back their own shares
- Forces the stock price to increase by creating an artificial demand
- EPS will increase because quantity of outstanding shares decreases
- For psychological reasons, keeps market guessing
- For control reasons
- to fend off hostile takeover
- To give stock options to top executives/employees
- best investment alternative for the company
- Save on dividend payments
The prospectus will be distributed to
Potential Investors
If company has $100 million in bonds with an annual interest payment of 4%, and an EBIT of $14 million, and 40% tax rate, what is their EAT?
$100*0.04 = $4 million EBT = $14 - $4 = $10 million EAT = $10 * (1- 40%) = $6 million
Net income after taxes is also called…
EAT = earnings after taxes
If a company has EAT = $6 million, and 40,000 preferred stock of 3.25%, and 200,000 common shares, then what is their EPS?
EPS = ($6 million - (3.25% * $100 * 40,000) / 200,000 = $5,870,000/ 200,000 = $29.35
Payout Ratio =
Dividends/Share / EPS * 100%
If a company has a P/E ratio of 9, that means…
That as an investor you are willing to invest $9 in order to get $1 return
Price / Earnings Ratio =
= Price / EPS
As an investor, a ____ P/E ratio is favorable
lower
though could indicate the future for that company is not very promising
The average P/E ratio of today’s market is…
23
Dividend Yield =
= Dividend / Stock Price * 100%
compare it to the benchmark interest rate from the FED, or a CD
If a Dividend Yield is 4%, that means that for very $100 you invest
you receive $4
Fiscal Policy are those policies which are involved with…
government spending and taxes
Fiscal Policy is determined by…
The executive branch in conjunction with Congress, and the Treasury Dept
Current Secretary of the Treasury is
Janet Yellen
Biden’s Infrastructure bill is an example of
Fiscal Policy
Monetary Policy are those policies which are involved with
Money supply and interest rates
The FED is in charge of
Monetary Policy
The Federal Reserve has a board of governors with ___ members
7
the Fed’s board of governors are appointed by
the president
Fed board members cannot
freely trade stock
Jerome Powell is
The Chair of the Federal Reserve
The chair of the Fed is appointed for a term of___
4 years by the president
FOMC means
Federal Open Market Committee
How many regional banks does the Fed have?
12
Which city’s regional bank needs to have a member on the FOMC
NYC
How many times per year does the FOMC meet?
8 times (or every 6 weeks)
The Beige report is issued by ___ when…
By the FOMC, 2 weeks prior to each meeting
How many members are on the FOMC
12 members (7 board of governors of the Fed + 5 presidents of regional banks)
Marginal Tax Rate means…
If you earn 1 more dollar, at what % will you be taxed at
Average Tax Rate =
= Total Tax Obligation / Total Taxable Income
Is interest tax deductible?
Yes
Which type of shareholder has voting rights
Common stockholders
Which type of shareholder gets paid dividends firsts
Preferred
