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Chapter 1
Equity Securities
33
Other
04/02/2013

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Cards

Term
Common Stock
Definition
Become shareholder. Common stock is an Equity Security since shareholders have an equity (meaning ownership) position in a company.  Never fixed income security.
Term
Order of Asset Distribution
Definition

1. Taxes

2.Secure Debt

3. Unsecured Debt

4. Preferred Stockholders

5. Common stockholders

 

Term
Rights Common Shareholders Do Not Have
Definition

1. Not entititled to recieve dividends

2. Do not have ther ight to demand or vote on the dissolution of the company.

3. Do not have the right to vote for officers or senior management of the company.

Term
Authorized Stock
Definition
is the maximum number of shares of stock that is allowed to be sold ("issued") by a corporation as regulated by its corporate charter that ia filed with the Secretary of State.
Term
Issued Stock
Definition
Is the amount of stock taken from authorized stock that is sold or "issued" to the public ina Primary Distribution.  The amount is equal to or less than the amount "authorized" by the company.
Term
Equity
Definition
Ownership
Term
Why buy common stock?
Definition

1. Dividends

2. Capital Gain on Investment

Term
Dividends
Definition
Want to and not have to.  Paid quarterly.  Decided by board of directors.
Term
Treasury Stock
Definition

Results when a company repurchases its own outstanding common shares in the open market. 

1. Does not vote

2. Does not recieve Dividends

3. Is not used in Earnings per Share

4. Appears on balance sheet as a deduction from issued stock.

Term
Outstanding Shares
Definition

Are the shares of a corporation's stock that are issued and held by stockholders.  Oustanding shares are the only shares that:

1. Vote

2. Recieve Dividends

3. Are used to calculate Earnings Per Share

 

Term
All Securities purchased on margin
Definition
Must be held in street name
Term
Long Position
Definition
When an investor "buys" and owns any security we say they have a long position.  Investors that go long generally expect the market price of the security to go up in price and are said to be Bullish.
Term
Short Position
Definition
When an investor "borrows" stock from their broker-dealer and then sells teh stock they borrowed.  That investor as a short position.  Short sellers attempt to make money by
Term
Which security is always the most risky?
Definition
Common Stockholders- last to be paid if liquidation of a company occures.
Term
Proxy
Definition
Absentee Voting
Term
Par Value
Definition
is the stated fixed value printed on the face of the stock certificate.  It was little or no relevance for investors.
Term
Regular/Satuatory Voting
Definition
One vote per share per director
Term
Cummulative/Block Voting
Definition
One vote per share times the number of directors being voted on.  Best for the investor becasue they can block votes together.
Term
Market Value
Definition

is the price at which a stock can be sold in the open market.  Determined by supply and demand.  A stock does not have a fixed market value. Fluctuates ina value daily in the market.

 

Term
A Point
Definition
Stocks and bonds are quoted in dollars and cents.  With common stock and "point" is equal to $1.
Term
Trade Date
Definition
The date on which a buy or sell order is executed.
Term
Regular Way Settlement Date
Definition
The day on which a trade must be "settled", meaning the buyer must pay for the security that was purchased and the seller must deliver the security that was sold.  Regular Way settlement is three business days after the trade date (T+3)
Term
Regular T Settlement
Definition
Regulation T is the Federal Reserve Board regulation covering the extensionof credit to customers.  It requires that payment for purchases of securities must be recieved by the fifth business day after the trad date. (T+5)
Term
Blue Chip Stock
Definition
is the stock issued by a company that is generally nationally known with a reputation for quality management, products and services.
Term
Primary Distribution
Definition
Issued Stock-shares being issued to the public that has not been in the public hands before.
Term
Growth Stock
Definition

Is stock issued by a company that is expected to have above-average increases in revenues and earnings.

 

1. Have a high percentage of retained earnings, and therefore

2. pay little or no dividend resulting ina low dividend yield.

3. generally have a high price/earnings

4. stock price may fluctuate widely and typically have high volatility

Term
4 Reasons Companies buy back stock
Definition

1. Increase earnings per share

2. Finance future acquisitions  (take over)

3. To provide stock for employee stock option plans

4. To fight a takeover attempt

Term
Outstanding Stock Formulla
Definition
Issued Stock - Treasury = Outstanding
Term
Cyclical Stock
Definition

Is stock that is heavily affected by normal business and economic cycles.  Cyclical stocks are those that rise and fall in the economy.

Auto Manufacturers

Steel Companies

Appliance Manufactures

Housing companies

Paper companies

Term
Countercyclical Stock
Definition

Countercyclical stocks that move in the opposite of Cyclical stocks.  Move in the opposite of the economy.

Gold Mining

Budget Retailers- Walmart

Temp Agencies

Term
Defensive/Non-Cyclical Stock (Not Defense)
Definition

Stocks issues by a company that is resistant to normal business cycles and to general stock market fluctuation.  An invester would not expect significant increases or growth of defensive stocks, rather stable and consistant earnings year after year.

 

Tobacco Companies

Ultilities

Food Companies

Pharmaceutical companies

Term
Utility Stocks
Definition

Utility companies provide electricity, gas, water, etc. to thier customers.

Above average dividends

Highly leveraged because of customer dependency

Interest rate has higher impact

Term
Special Situations
Definition

Stocks that are undervalued and whose price can increase in value due to a number of reasons.

New Management

Introduction of a popular new product

Discovery of natural resource of corporate property