BA 4C: Ch. 10 - Features of Common Stock
Rights Offering
Offering of newly issued stocks to common stockholders first
Common Stock
final (residual) claim on assets and earnings of a firm; last makakuha ng money in case of liquidation
Debt and/or Equity
firm's source of finance
Cyclical Firm
fluctuating earnings
Paid-in Capital
funds paid in excess of stock's par value when shares were first sold (yield?)
Employee Stock Option Award
grants employees to purchase stock @ set price
Cycling firms
have stable LOW dividends but give out extras when earnings are high
Common Stock
holders get voting rights; ALL rights of ownership; bear the risk, reap rewards of being owner
Stock Outstanding
how many stocks have been issued to public
Stock Split
investors prefer lower-priced stocks; benefits current holders by widening market; to increase marketability
Stock Split
lowers prices of stock and makes it more accessible to investors; recapitalization bc changed number of shares outstanding
Payout Ratio
measures proportion of earnings distributed
Second type of DRIP
money goes directly to company after issuance; no brokerage fees
Retention of earning and retiring debt
no effect on total, no effect on assets, decreases debt, no effect on equity, increases retained earnings, no effect on total equity and liabilities
Two for one stock split
one share becomes two
Traditional Voting
one vote per share for each seat; minority voters won't stand a chance
Equity
ownership; represented by stocks (preferred but mostly common)
Dividend Reinvestment Plans (DRIPs)
plans that permit stockholders to have cash dividends reinvested in additional shares instead of receiving cash; FORCED SAVINGS
Dividend Policy
question on how much a firm's earnings should be distributed; to retain and increase stockholder's investment or to distribute in cash dividends
Payout Ratio
ratio of cash dividends to earnings
Reverse stock split
reduce number of shares; more expensive
Dilution
reduction in earnings per share as a result of issuing additional shares
Equity
represents ownership in a firm; residual claim (bc debt has prior claim); riskier than debt
Total Equity
represents stockholders' TOTAL contribution to firm (not cash, so not asset)
Preemptive Rights
right to maintain their proportionate ownership in the firm; if new stocks are issued, must first be offered to common stockholders; some firms can eliminate but need to ask first
How firms raise funds
selling stock (preferred or common)
Ex-dividend
stock purchases exclusive of any dividend payment bc bought after date of record
Cumulative Voting
stockholders can cast all their shares (votes) for one candidate for the firm's board of directors; minority representation but not an assurance
Ways to distribute vote
traditional and cumulative voting
Board of Directors
who the stockholders elect and who hires management; higher-ups of management but responsible to stockholders
Stable dividends and fluctuating earnings
Fluctuation payout ratio
Retention of earning and investing it (so hindi namigay ng dividends)
Increased both sides. Increases assets, does not affect debt, does not affect equity, but increases retained earnings, increases total equity and liabilities
Retained Earnings
accumulated earnings of the firm that had not been distributed; can be negative, part of stockholder's contribution to firm
Transaction costs, taxation, and cash needs
affect dividend policy
Recapitalization
altered equity entries
First type of DRIP
bank is the one who does it; smaller commission fee bc banks buy by blocks; common
Pay or Distribution Date
day dividend is distributed
Date of Record
deadline; investor must own stock at this date in order to avail dividends; two days before date of record must be bought na
Repurchase of Stock
decrease number of shares outstanding; less shares=higher price
Stock Dividends
distribution from earnings paid in additional shares of stock; does not affect assets and liabilities - only entries in equity; in addition to cash dividends
Cash Dividends
distribution from earnings paid in the form of cash
Steps of distributing dividends
dividend meeting of firm's directors, setting or record and pay date
Distribution of dividends
does not affect balance sheet whatsoever bc walang papasok na pera, and walang ding lumabas bc they're new earnings
Distribution of dividends
does not affect paid in capital