Term
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Definition
| Net Worth = Assets - Liabilities |
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Term
| 4 Classifications of common stock |
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Definition
| Authorized
Issued
Outstanding
Treasury |
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Term
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Definition
The specific number of shares the company has authorization to issue or sell
Laid out in the company's charter
Unissued stocks does not carry the rights and privileges of issued shares and is not considered in a company's total capitalization |
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Term
| Can a company sell more shares than authorized by its charter? |
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Definition
| Yes, but the charter must be amended. |
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Term
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Definition
| Stock that has been authorized and distributed to investors |
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Term
| Uses for unissued shares of authorized stock |
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Definition
| Raising new capital for expansion
Paying stock dividends
Providings stock purchase plans for employees
Exhanging common stock for outstanding convertible bonds or preferred stock
Satisfying the exercise of outstandig stock purchase warrants |
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Term
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Definition
| Shares that a company has issued but has not repurchased...stock that is investor-owned |
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Term
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Definition
| Stock a corporation has issued and subsequently repurchased from the public
Does not carry rights of outstanding common shares such as voting rights and dividends
Reduces the number of shares outstanding which may increase earnings per share |
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Term
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Definition
| Hold it indefinitely
Fund employee bonus plans
Distribute it to stockholders as a stock dividend
Redistribute to the public as an additional offering |
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Term
| Reasons for buying back issued stock |
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Definition
| Increase earnings per share
Have inventory available to fund pension plan, distribute as options, etc.
Use for future acquisitions |
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Term
| ABC Company has authorized 1 million shares of common stock. It issued 800,000 shares one year ago. It then purchased 200,000 shares for its treasury. How many shares of stock are outstanding? |
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Definition
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Term
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Definition
| Arbitrary value the company gives the stock in the articles of incorporation
Has no effect on stock's market price
Money received in excess of par value when the stock is sold is recorded on the corporate balance sheet as capital in excess, paid-in surplus, capital surplus, or paid-in capital |
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Term
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Definition
| The price investors must pay to buy the stock |
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Term
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Definition
| Book value per share = how much a common stockholder ccould expect to receive if the corporation were liquidated
Assets minus liabilities divided by number of shares outstanding |
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Term
| Rights of common stock ownership |
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Definition
| Voting rights
Preemptive rights
Limited liability
Inspection of corporate books
Residual claims to assets |
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Term
| Corporate policy matters that common stockholders have the right to vote on |
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Definition
| Issuance of convertible securities
Substantial changes in the corporation's business, such as mergers and acquisitions
Declarations of stock splits
Board members
Shareholders do not vote on dividend-related matters |
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Term
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Definition
Stockholder has one vote per share owned for each item on the ballot
Benefits the large sharholder |
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Term
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Definition
Allows stockholders to allocate their total votes in any manner they choose
Benefits the smaller investor |
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Term
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Definition
When a company sends proxies to shareholders, usually for a specific meeting
Before making a proxy solicitation, companies must submit the information to the SEC for review |
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Term
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Definition
Situation where a proxy vote could change control of the company
All persons involved must register with the SEC as participants
Includes anyone providing unsolicited advice about how to vote |
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Term
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Definition
Gives stockholders the right to purchase enough newly issued shares to maintain thier proportionate ownership right
Also called an antidilution provision |
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Term
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Definition
| Stockholders cannot lose more than the amount they paid for a corporation's stock |
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Term
| Inspection of corporate books |
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Definition
The right of stockholders to receive annual financial statements and obtain lists of stockholders
Does not include the right to examine detailed financial records or minutes of BOD's meetings |
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Term
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Definition
The right to claim corporate assets after all debts and other security holders have been paid when a company is liquidated
Common stock is the most junior security because it is last in line |
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Term
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Definition
Increases the number of shares and reduces the market price
Same total ownership as before
Assume a stock split of 5:4; original position is 100 shares @ $60 per share ($6,000)
100 x 5 = 500,000; 500,000/4 = 125
The new number of shares is 125
$6,000/125 = $48
The new share price is $48 |
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Term
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Definition
Investors own fewer shares worth more per share
Original position is 100 shares at $5 ($500); stock split is 1:4
100 x 1 = 100; 100/4 = 25 shares after the split
$500/25 shares = $20 new price per share |
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Term
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Definition
Said of an investor who opens a position by buying shares
A long investor's loss is limited to his investment in the stock |
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Term
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Definition
Borrowing shares to sell that the investor must eventually replace
A short seller's losses are theoretically unlimited because there is no limit to how high the stock's price may climb before he can buy it back |
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Term
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Definition
| Gain obtained when an investor sells a stock at a higher price than he paid for it |
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Term
| Realized vs unrealized gain |
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Definition
Realized gain is taxable and occur when the stock is sold
Unrealized gain is the difference between the price paid and the current selling price. Because the stock is not sold, the gain is not taxable |
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Term
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Definition
No assurance investor will recoup his investment
Dividend income may decrease or cease entirely
Low priority when corporation is liquidated |
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Term
| Preferred stock - advantages of common stock |
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Definition
Receives dividends before common stockholders
Priority claim over common stockholders if company liquidates |
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Term
| Preferred stock - equity or debt security? |
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Definition
Like equity because it represents ownership in the corporation
Like a debt security, it does not offer the appreciation potential of an equity security
Price tends to fluctuate with interest rates, not company's business prospects
Is non-voting |
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Term
| Preferred stock characteristics |
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Definition
Fixed or adjustable rate of return
A preferred stock with a par value of $100 and an annual dividend of $6 is known as 6% preferred
Limited ownership privileges
No maturity date or maturity value |
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Term
| Inverse relationship of preferred stock pricing |
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Definition
Because the dividends are fixed, price fluctation is similar to bonds
When interest rates rise, the preferred price falls
When interest rates fall, the preferred price rises |
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Term
| Categories of preferred stock |
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Definition
| Straight
Cumulative
Convertible
Participating
Callable |
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Term
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Definition
No special features beyond stated dividend payment
Generally pays a higher dividend than cumulative preferred |
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Term
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Definition
| When dividends are missed, they accumulate on the company's books until they are paid and investors receive all dividends in arrears with the next paid dividend |
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Term
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Definition
Can be converted into common stock at a preset price noted on the certificate
Often comes with lower stated dividends because of the potential for capital gains when the stock is converted
Conversion dilutes the number of common shares, decreasing earnings per common share and sometimes decreasing market value |
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Term
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Definition
Offers owners a share of profits that remain after all dividends and interest due on other securitieshave been paid
Percentage of participation is noted on stock certificate
Example, a preferred stock described as 6% preferred participating to 9% may pay up to 3% in additional dividends if so declared by the BOD |
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Term
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Definition
Stock the company can buy back at a stated price after a specified date
Dividend payments and conversion rights typically end on the call date
In exchange, the stock usually pays a premium exceeding the par value at the call, such as $103 for a $100 par value stock
Typically has the highest stated dividend of any preferred stock due to the potential loss of the dividend |
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Term
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Definition
Distributions of the company's profits to its shareholders
Can be paid in cash, stock or property |
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Term
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Definition
A stock's annual dividend/current market value
Also call dividend yield |
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Term
| Features of transferable securities |
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Definition
| The stock certificate - indicates the number of shares owned by the investor
CUSIP Number - each issue of a stock or bond has its own CUSIP
Negotiability - shareholder can give, transfer, assign or sell shares that he owns with few restrictions |
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Term
| Responsibilities of a transfer agent |
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Definition
| Ensuring that securities are issued in the correct owner's name
Canceling old and issuing new certificates
Maintaining records of ownership
Handling lost, stolen or destroyed certificates |
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Term
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Definition
Ensures that a corporation does not have more shares outstanding than have been authorized
Must be independent of the issuing company, usually a bank or trust company |
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Term
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Definition
| National Association of Securities Dealers Automated Quotation system |
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Term
| Name the 3 markets of the Nasdaq |
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Definition
| Nasdaq Global Select Market - listings are among the highest on any other market
Nasdaq Global Market - securities with high interest and appeal
Nasdaq Capital Market |
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