Equity Financing
Common stock dividend =
# shares x per share dividend
Average Equity =
(Equity at Jan 1 + Equity at Dec 31)/2
Earnings per share (EPS) =
(Net income - preferred stock dividends)/ # of common shares outstanding
Common Stock
- Common stockholders have voting privileges: elect board of directors, vote on significant activities of management - Dividend rates are determined by the board of directors based on the corporation's profitability - Receive dividends after preferred stockholders
Preferred Stock
- Has dividend preference: IF a dividend is paid, preferred stockholders must be paid in full before common stockholders can receive a dividend - The preferred stock dividend is set at a fixed percentage - Preferred stockholders typically don't have voting rights
Treasury stock
A corp's own stock that had been issues but was subsequently reacquired, CONTRA EQUITY account
Paid in capital
Equity account in which the excess of the selling price of stock over the par value is recorded
Price Earnings (P/E) Ratio =
Market price per share of stock/earnings per share Higher is better - associated with firms with strong growth predicted in the future
Return on Equity (ROE) =
Net Income/Average Equity Higher is better
Equity Financing
No responsibility to repay, investor takes risk, investor rewarded by company's future successes
Cumulative preferred stock
Preferred stockholders must be paid both current and prior years unpaid dividends before common stockholders receive any dividends
Contributed Capital/Capital Stock
The amount that owners have contributed through the purchase of stock
Retained Earnings
The net income earned by the company not paid out as dividends
Outstanding shares
The total number of shares actually owned by the stockholders
Authorized shares
The total number of shares of stock that the company is allowed to sell to the public
Issued shares
The total number of shares that have been sold to the public
Par value
a monetary amount assigned to each class of stock for accounting purposes only, no relationship to market value
Earnings per share definition
measures the amount of net income associated with each share of common stock
Return on Equity definition
measures the amount of profit earned for each dollar of stockholder investment, ROE of 15% means that 15 cents of profit were earned for each dollar of investment
Preferred Stock Dividend =
par value per share x %
Total Preferred Stock Dividend =
par value per share x % x # shares outstanding
Dividends in arrears
prior years unpaid preferred stock dividends, do not represent actual liabilities and thus are not recorded in the accounts, but must be disclosed in the notes to the financial statments
