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