Common Stock

Financing corporation
Good Morning
Bishnu & His Friends
Bishnu Dhamala
Amrit Thapa
Rabindra Neupane

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What We are going to Present?

-Introduction
-History of world Stock Market
-History of Nepalese Stock
Market
-Corporate Ownership
-Conclusion
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Corporate Ownership
The major advantage of the corporate form of business
is the ease of raising capital as both large and small
investors can participate in corporate ownership.

Simple to
become an
owner

Easy to
transfer
ownership

Provides
limited
liability

Because a corporation is a separate legal entity, it can

Own assets.
Incur liabilities.
Sue and be sued.
Enter into contracts.
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The History of Stock Market in the World

Amsterdam Stock Exchange in 1602 in the city of Amsterdam, Netherlands.
Paris Bourse in 1724 in Paris, France.
Philadelphia Stock Exchange in 1790 in Philadelphia, USA.
London Stock Exchange in 1801 in London, England. However, a market had existed
previously (with records beginning in 1698: agro-commodity) at Jonathans Coffee
House, also in London.
Milan Stock Exchange in 1808 in Milan, Italy.
New York Stock Exchange in 1817 in New York, USA. This exchange was
preceded by the Buttonwood Agreement of 1792.
Frankfurt Stock Exchange in 1820 in Frankfurt, Germany. 1820 denotes the first
records of shares being traded. There was, however, a market for bonds (debt
instruments) since the late 18th century.
Bolsa de Madrid in 1831 in Madrid, Spain.
Toronto Stock Exchange in 1861 in Toronto, Canada.
Australian Stock Exchange in 1872 in Sydney, Australia.

Indian Stock Market

Bombay Stock Exchange in 1875.
Nepalese Stock Market
Nepal Stock Exchange (NEPSE) in January 13, 1994.
The history of (common) stock
The oldest existing stock certificate was issued in 1606 for a
Dutch company (Vereinigte Oostindische Compaignie)
In Nepal, Biratnagar Jute Mills Limited, in 1937 A.D. issued the
first common stock in Nepal.

Brief History of stock market

development in Nepal

Stock market began with the issue of shares by Biratnagar Jute Mills Ltd in
1937.
Security Marketing Centre (SMC) was established in April 1977 under
Industrial Policy, 1974 with the objective of facilitating the transaction of
government development bonds and corporate securities.
SMC started secondary trading of securities in November 1981 which
restricted to government bonds.
Security Exchange Act, 1983 was enacted in 1983.
The then SMC was converted into Securities Exchange Centre (SEC) in 1984.
SEC opened its floor for corporate share trading in November 1984.
The first amendment in Securities Exchange Act, 1983 in 1993 paved the way
for the restructuring of stock market in Nepal, which led to establish
Securities Board of Nepal (SEBON) in 1993 with a mandate to regulate and
develop the stock market.
The first amendment in the Act also led to convert the then SEC into NEPSE,
a full-fledged open-out-cry trading system with the induction of stock brokers
in January 13, 1994.
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Corporate Ownership
Voting rights.
Dividends.
Stockholder
Benefits

Residual claims.
Preemptive rights.

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Corporate Ownership
S to c k h o ld e r s
(O w n e r s o f v o tin g s h a r e s )
B o a r d o f D ir e c to r s
P r e s id e n t
V ic e P r e s id e n t
(P r o d u c tio n )

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V ic e P r e s id e n t
(M a r k e tin g )

V ic e P r e s id e n t
(F in a n c e )

V ic e P r e s id e n t
(P e r s o n n e l)

Equity Versus Debt Financing

Advantages
Advantages of
of equity
equity and
and debt
debt financing.
financing.

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Advantages of equity

Advantages of debt

Equity does not have to

be repaid.

Interest on debt is tax

deductible.

Dividends are optional.

Debt does not change

stockholder control.

Common Stock Transactions

Two primary sources of
Stockholders Equity
Contributed
Capital
Common
Stock
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Additional
Paid-in
Capital

Retained
Earnings

Authorization, Issuance, and

Repurchase of Stock
Authorized
Shares

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Outstanding shares are

issued shares that are
owned by stockholders.
Issued
Unissued
shares are
shares of
Outstanding
The maximum number
Unissued
authorized
stock are
Shares
of shares
of capital
shares
of
shares
Shares
that
benever
stockstock
that that can
have
haveissued
been to the public.
been
Treasury
distributed to
distributed to
Shares
stockholders.
stockholders.

Stock Authorization

Par
Par value
value is
is an
an
arbitrary
arbitrary amount
amount
assigned
assigned to
to each
each
share
share of
of stock
stock when
when itit
is
is authorized.
authorized.

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Market price is the

amount that each
share of stock will sell
for in the market.

Stock Issuance

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Initial public offering

(IPO)

Seasoned new issue

The first time a

corporation issues
stock to the public.

Subsequent issues
of new stock to the
public.

Dividends on Common Stock

Declared by board
of directors.
Not legally
required.
Creates liability at
declaration.
Requires sufficient Retained
Earnings and Cash.
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Dividends Dates

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Stock Dividends
Small

Large

Stock dividend < 20 25%

Stock dividend > 20 25%

Record at current
market value
of stock.

Record at
par value
of stock.

The journal entry moves an amount from

Retained Earnings to other equity accounts.
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Preferred Stock Dividends

Current Dividend Preference: The current
preferred dividends must be paid before
paying any dividends to common stock.
Cumulative Dividend Preference: Any
unpaid dividends from previous years
(dividends in arrears) must be paid before
common dividends are paid.

If the preferred stock is noncumulative, any

dividends not declared in previous years are lost
permanently.
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Earnings Per Share (EPS)

Earnings per share is probably the single
most widely watched financial ratio.
Net Income
EPS =
Average Number of Common Shares Outstanding

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Return on Equity (ROE)

Return on equity is the amount earned
for each dollar invested by stockholders.
ROE

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Net Income
Average Stockholders Equity

Thank you

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