Shareholder's Equity

Market Value of a Company

Calculated by multiplying their EPS by outstanding shares.

Par Value

Calculated value attached to each share.

Redeemable Preferred Shares

Can be bought back at a price and time specified by the company. Similar to retractable preferred shares.

Corporation

Limited liability, taxation and status as separate legal entity. Board of directors make decisions, are elected by shareholders and they choose the management team for day-to-day operations. Subject to double taxation.

General Partners

Make decisions about day-to-day and have unlimited liability.

Authorized shares

Maximum amount of shares that can be issues. Many corporations have unlimited shares.

Price/Earnings Ratio

Measure of earnings relation to number of common shares. Try to compare with companies in the same industry. Higher the better. Market price per share / Earnings per share

Return on Equity

More general than earnings per share. Measure of return on common shares only. ROE = (net earnings - preferred dividends)/ Avg common shareholder's equity

Dividends

Payments to shareholders from the total net earnings account. Only if the board of directors has declared a dividend. Declaration makes it a legal liability. Cannot pay dividends to themselves only outstanding shares.

Participating preferred shares

Preference with dividends, share in excess dividends.

Treasury Shares

Shares that have been repurchased by the issuing company and cancelled immediately upon purchase. Wants to reduce the number of shares outstanding.

Outstanding shares

Shares that remain in the possession of shareholders outside the company, if company repurchases they are no longer outstanding.

Sole Proprietorship

Single-owner business. All profits and losses belong to owner, all decisions are made by owner or under their direction. Less concerned about preparing reports. Fully liable.Unlimited liability. Not taxed at business level.

Statement of Changes in Equity

Summarizes the changes in all of the equity accounts and is usually presented in a column format.

Issued shares

shares that have been sold by the company.

Stock Options

Common share agreement between two parties to either buy or sell shares at a fixed price at some future date. Employee stock options generally cannot be traded because they are restricted to the employees whom they are issued. Causes dilution of earnings per share because it is now divided among a larger group. To prevent over dilution companies will repurchase their own shares.

Different Shares

Different shares are authorized to attract different types of shareholders. Differ in rights.

Stock dividends

Dividends satisfied by issuing additional company shares to shareholders. Issuing a stock dividend does not reduce a companies overall value. The value attached to each share is a bit less. Shareholders may be better off. Provides an opportunity for the company to capitalize its retained earnings.

Property Dividends

Dividends that will be settled with some resource other than cash. Valued at FMV because this is what the company is giving up to pay the dividends.

Limited partners

Have limited liability but also limited involvement.

Preferred Shares

Have preference over common shares when referring to dividends also net assets if company is liquidated.

Articles of Incorporation

Include information about what type of business the company will conduct, how the board of directs will be organized, who the management will be and what kind of shares will be issued.

Stock Split

Increases the number of shares outstanding and is usually stated as a ratio. Changes number of shares issued and outstanding. Improves the marketability of the shares, Reducing the share price and allowing for my investors to invest.

Retained Earnings

RE at beg + Net earnings - dividends declared

Repurchasing Shares

Reduces the share capital account by the amount that the shares were originally issued for. There is a gain or loss on purchase that is recorded in the RE account.

Common shares

Represent company's basic voting ownership rights. Corporation retains control over profits, one share equals one vote for management, get what is left after creditors and preferred share, has the right to buy more shares when they are issued to maintain % of company.

Accumulated Comprehensive Income

Retained earnings for other comprehensive income.

Partnership

Same as sole proprietorship. Use a partnership agreement to define what happens. Unlimited liability. Not taxed at business level.

Book Value

Shareholder's equity represents assets - liabilities of a company. Monitors the value of their investment.

Private Companies

Shareholders already own a significant amount of the company. 100% of share to exert control over operations and strategy.