Level 32 Level 34
Level 33

Common Stocks (i.e. Ordinary Shares)


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securities
financial contracts (like shares) that can be traded in a financial market
Private Corporation
is a company that issues stock to a small group of people
Public Corporation
is a corporation that sells its shares openly to anyone who will buy them.
Par Value
the nominal or face value of a stock or bond
dividend
interim payment from a stock
Stock Split
Shares of stock held by existing stockholders are divided into a larger number of shares.
Preemptive Right
a provision in the corporate charter or bylaws that gives common stockholders the right to purchase on a pro rata basis new issues of common stock
Preferred Stock
Gives the stockholder the advantage of receiving cash dividends before common stockholders receive any cash dividends.
Why do corporations sell shares of stock?
To make money, sell its products, fund operations, and expand the corporation.
Why do investors buy shares of stock?
Investors want to make more money than they would in safer investments as with bonds or savings accounts.
Why do corporations issue common stock?
To start up their business and help pay for ongoing operations.
The Board of Directors
Who decides if dividends will be paid to shareholders?
What are three ways investors can make money on common stocks?
Profit when they receive dividends, when the dollar of their stock appreciates, and when the stocks split and increase in value.
When and how is common stock dividends paid?
Common stock share holders are paid an equal amount per share usually quarterly.
Dollar appreciation of stock
If the Board of directors decides to invest the profits back into the corporation how are dividends paid to stockholders?
Why do corporations split their stock?
The management believes that stocks should be trading within an ideal price range.
What does a stock split increase and decrease?
Lowers the value but increases the number of shares.
What is required by law for corporations to do for shareholders?
Hold a yearly meeting in which shareholders can vote on company business. Shareholders usually have one vote per share.
How does preferred stockholder know the amount of dividend they will receive?
Preferred stockholders are paid dividends by using the par value which is the value of the stock multiplied by the dividend rate. The par value is printed on the stock certificate and does not ch…
limited voting rights and lacks little growth.
What is a disadvantage of preferred stock ownership?
What are advantages of preferred stock ownership?
are considered a safer investment than common stock and provides a steady source of income.
What are three types of preferred stock incentives?
Cumulative preferred stock, convertible stock, and participation feature.
What is cumulative preferred stock?
Investors who hold cumulative preferred stock will build up dividends that will be paid at a later date if the Board of Directors omits dividend payments.
What is convertible preferred stock?
preferred stock that can be exchanged for a specific amount for a specific amount of common shares.
Participation feature
allows preferred stockholders to share in dividends with common stockholders after all common share dividends have been distributed.
Common Stock
Share of an ownership in a corporation
sole prorietorship
Business owned by one person
partnership
Business owned by more than one person
Articles of Incorporation
Legal document that defines the corporation including name, officers, number of shares and par value of shares.
annual report
Financial information issued to stockholders at the end of each operating year.
corporation
A form of business in which the stockholders are the owners. It functions separate from its owners (limited liability.)
Capital Gain
an increase in the value of an asset
Capital loss
is the sale of an investment less its purchase price.
bylaws
The rules and regulations by which a corporation is governed.
risk capital
The amount of money an investor can afford to lose.
board of directors
Elected by the stockholders to set policy and choose the officers who run the business.
business structure
Legal form of ownership for a business: sole proprietorship, partnership and corporation.
Balance Sheet
statements of assets and liabilities
Income Statement
Record cash dividends from the investee's retained earnings. Do not recognize stock dividends (Memo entry only).
Dividends
Periodic payments made off of equities to owners of that equity. Considered long-term securities since they have no maturity date
dividend growth model
a model that determines the current price of a stock as its dividend next period divided by the discount rate less the dividend growth
dividend yield
dividend divided by price
capital gains yield
the dividend growth rate, or the rate at which the value of an investment grows
cumulative voting
a procedure in which a shareholder may cast all votes for one member of the board of directors
straight voting
a procedure in which a shareholder may cast all votes for each member of the board of directors
Proxy
document giving one person the authority to act for another, typically the power to vote shares of common stock
Primary Market
financial market where issues of a security are sold to initial buyers by the borrower
Secondary Market
Financial market where securities have been previously issued are resold
Dealer
Maintain/sell out inventories instead of always have to locate a seller to match to buy and vice versa. Don't make commission, make bid-ask spread
Broker
Match buyers of securities w/ sellers. Don't maintain inventories in these assets and locate buyer/seller to complete transactions ordered by another party. Profit is made off commission they charge to the buyer/seller/both
member
as of 2011, a member is the owner of a trading license on the NYSE
commission brokers
NYSE members who execute customer orders to buy and sell stock transmitted to the exchange floor
specialist
a NYSE member acting as a dealer in a small number of securities on the exchange floor; often called a market maker
floor brokers
NYSE members who execute orders for commission brokers on a fee basis; sometimes called $2 brokers
SuperDOT system
an electronic NYSE system allowing orders to be transmitted directly to the specialist
floor traders
NYSE members who trade for their own accounts, trying to anticipate temporary price fluctuations
order flow
the flow of customer orders to buy and sell securities
specialist's post
a fixed place on the exchange floor where the specialist operates
Over-The-Counter (OTC) Market
A type of secondary market in which dealers at different locations who have an inventory of securities stand ready to buy and sell securities to anyone who comes to them and is willing to accept their prices
electronic communications network (ECN)
a website that allows investors to trade directly with each other