Stocks Flashcards
Rights of a stock holder
- Certificate
- Vote for board members
- Limited financial info
- Preemptive rights (buy new shares at a discount)
- Share in corporate profits
Have limited liability
Voting structure
of shares held x # of vacancies on board = # of votes
B shares dilute voting power
Voting types
- Statutory - votes divided equally between all candidates
2. Cumulative - votes divided up any way
Authorized shares
Shares a company is allowed to issue based on corporate charter
Unissued shares
Portion of authorized shares kept by company, shares may be kept by company for up to 2 or 3 yrs (shelf “life” registration)
Issued shares
Shares sold to the public
Treasury stock
Shares sold to the public that are repurchased by the company.
Reasons for treasury stock
- Avoid hostile takeover
- Use as bonus for employees
- Increase demand (price) for existing shares
- Use as collateral to borrow
No voting power, no divs
Outstanding shares
Issued - treasury
Stock par value
Price used by company for bookkeeping, arbitrary
Stock splits
Make mkt price more attractive, approved by shareholders, does not change % of ownership or value of investment, just may make it easier to buy round lots
3 types: even, reverse, uneven
Preferred stock
Par = $100, div is expressed as % of par, paid qtrly, no voting rights
Convertible preferred
Can convert preferred to common at any time, usually lower div, conversion price and conversion ratio
Par/conversion price = conversion ratio
Callable preferred
Company can buy back, pays higher div
Participating preferred
Receive both preferred and common divs
Prior (senior) preferred
Preference above other preferred stock in bankruptcy situations
Cumulative preferred
Can delay paying full div, but must pay back before common div
ADR
American depository receipts - foreign stocks traded in US mkts, issued by foreign branch of US bank, bank sponsored, paid in US dollars, no voting privileges, or preemptive rights, subject to currency risk
Warrants
Buy additional shares of stock at fixed price (sweetener), can be traded separately, often carry expirations, usually long term, no voting rights, no divs
Rights
Preemptive rights allow investors to maintain proportional ownership when a company issues new shares, purchased directly at a discount, automatically received by common stockholders (not preferred), short term 30 days, can be traded separately.
1 share = 1 right
Stand by UW
Buys stock not purchased in rights offering and resells
Value of a right
Cum (with) rights:
(Mkt price - discount price)/# of rights for 1 share + 1
Ex (w/o) rights:
(Mkt price - discount price)/# of rights for one share
