Equity Capital Markets

International Economic Relations

Metropolitan University Prague
Martin Kolmhofer
2011/2012
 Terminology
Equity = Ownership
Shares represent part ownership of a business
 History

Dutch and British East India Companies among the first shareholder-owned
businesses (1602 share certificated traded in Amsterdam)

(Time of Explorations, trading ventures began to require more capital than a single
individual was able to invest )

Investors without firsthand knowledge of their operations relied on accounting

information

A business that is owned by shareholders is called: CORPORATION

 Raising Capital

Equity (ownership, voting rights, share in future

profit)
Loans (Debt only entitled to principle + interest)

Balancing Act:
in case of bankruptcy a bondholder will get paid
before a shareholder
However, the bondholder does not share in the
profits if a company does well
24 hour Market: The most important Financial Centers are London (central time
zone), Tokyo and New York
 Time Zone GMT
Sydney Open 10:00 PM
Sydney Close 7:00 AM
Tokyo Open 11:00 PM
Tokyo Close 8:00 AM
London Open 8:00 AM
London Close 5:00 PM
New York Open 12:00 PM
New York Close 9:00 PM
How are Stock Prices determined?
Example: You want to sell 100 stocks for a price of 28,50 EUR

Order Book:

28 EUR:
500 buyers, 100 sellers

28,50 EUR:
500 buyers, 400 sellers

29,00 EUR:
400 buyers, 400 sellers
Vienna
Budapest
Ljubljana
Prague
 NYSE Euronext Deutsche Boerse Merger
February 2011:
The New York and German stock exchanges have announced a $10-billion merger
How to Read a Stock Table
 How to Read a Stock Table
Columns 1 & 2: 52-Week High and Low. These are the highest and lowest prices at which a stock has
traded over the past 52 weeks (1 year). This typically does not include the previous day's trading.

Column 3: Company Name and Type of Stock. This column lists the name of the company. If there
are no special symbols or letters following the name, it is common stock. Different symbols imply
different classes of shares. For example, "pf" means the shares are preferred stock.

Column 4: Ticker Symbol. This is the unique alphabetic name which identifies the stock. If you watch
financial TV, the ticker tape will quote the latest prices alongside this symbol. If you are looking for
stock quotes online, you always search for a company by the ticker symbol. If you don't know a
particular company's ticker symbol, you can search for it at Yahoo Finance.

Column 5: Dividend Per Share. This indicates the annual dividend payment per share. If this space is
blank, the company does not currently pay out dividends.

Column 6: Dividend Yield. The percentage return on the dividend, dividend yield is calculated as
annual dividends per share divided by price per share.
 How to Read a Stock Table
Column 7: Price/Earnings Ratio (P/E ratio). This is calculated by dividing the current stock price by
earnings per share from the last four quarters.

Column 8: Trading Volume. This figure shows the total number of shares traded for the day, listed in
hundreds. To get the actual number traded, add two zeros to the end of the number listed.

Column 9 & 10: Day High and Low. This indicates the price range in which the stock has traded
throughout the day. In other words, these are the maximum and the minimum prices that people have
paid for the stock.

Column 11: Close. The close is the last trading price recorded when the market closed on the day. If
the closing price is more than 5% above or below the previous day's close, the entire listing for that
stock is bold-faced. Keep in mind, you are not guaranteed to get this price if you buy the stock the next
day because the price is constantly changing, even after the exchange is closed for the day. The close is
merely an indicator of past performance and, except in extreme circumstances, it serves as a ballpark
of what you should expect to pay.

Column 12: Net Change. This is the dollar value change in the stock price from the previous day's
closing price. When you hear about a stock being "up for the day," it means the net change was
positive.
 IPO
An initial public offering or initial purchase offer (IPO), referred to simply
as an "offering" or "flotation", is when a company issues shares to the public
for the first time.
 Underwriting
The process by which investment bankers raise investment capital from
investors on behalf of corporations and governments that are issuing securities
(both equity and debt).

The word "underwriter" is said to have come from the practice of having each
risk-taker write his or her name under the total amount of risk that he or
she was willing to accept at a specified premium. In a way, this is still true
today, as new issues are usually brought to market by an underwriting
syndicate in which each firm takes the responsibility (and risk) of selling its
specific allotment.
 Syndicate of Underwriters
If investment banks are hesitant to shoulder all the risk of an offering. Instead,
they form a syndicate of underwriters. One underwriter leads the syndicate and
the others sell a part of the issue.
 Major Players
The major players within the ECMs are large financial institutions such
Goldman Sachs, Citigroup and UBS.
 Major Players
League Tables:

Investment Banks:

Financial institutions that assists

individuals, corporations and
governments in raising capital

(Unlike commercial banks and

retail banks, investment banks
do not take deposits)