CHAPTER 8:

CORPORATE STOCKS

STOCK FINANCING

Happens when a stock are sold to raise funds for the Long-term financing requirements of the firm.

STOCKS Have NO MATURITY PERIOD unlike BONDS

Corporate stock is the capital or monetary fund that a company raises through the sale of shares. Shares of corporate stock define an ownership entitlement, called an equity position, and represent a proportional claim on a company's assets and future earnings.

TYPES AND VARIETIES OF CORPORATE STOCKS

CORPORATE STOCKS

COMMON STOCK

PREFERRED STOCK

CLASSIFIED

COMULATIVE / NON-COMULATIVE

DEFFERED

CALLABLE / NON-CALLABLE

VOTING TRUST CERTIFICATE

CONVERTIBLE / NON-CONVERTIBLE

GUARANTEED

PARTICIPATING / NON-PARTICIPATING

DEBENTURE

CLASS A / CLASS B

COMMON STOCKS

Stock issued by all corporations which represents real equity capital. It has a residual claim to earnings which carries the RISK of the business success or failure.

CLASSIFIED - The separation of company equity into more than one class of common shares, usually called "Class A" and "Class B."

DEFFERED type of an issue that entitles the holder to receive dividends, in the event of dissolution, assets, after the common shareholder have been paid.

VOTING TRUST CERTIFICATES -

GUARANTEED stock wherein the payment of dividends is guaranteed by another corporation. DEBENTURE not a stock in a real sense but a debt issue like debenture bonds. They are fixed and issued by limited companies.

Example of a Certificate with NO PARVALUE

Common Stock Financing: ADVANTAGES DISADVANTAGES

1. It does not entail fixed charges. 2. Theres no maturity date attached to common stocks. 3. Credit standing is enhanced with the sale of stock. 4. There are times that stock is easier to sell than debt.

1. Gives new shareholders the right to share and control the Corporation. 2. Dilutive effect on the Corporations share and price per share. 3. More expensive to underwrite & distribute than preferred stock. 4. Risk may perceive negatively the issuance of stock resulting to fall the price of stock.

PREFFERED STOCKS

has a claim on assets before common stock, in the event of bankruptcy and it also has a prior claim to dividends up to specified amount or rate.

CUMULATIVE when dividends are declared, the dividends must be paid first before paying the common stockholders. CALLABLE stocks which may be bought back by issuing corporation at its option, but at a stated call price. CONVERTIBILITY they can be converted into a common stock within a certain period of time. PARTICIPATION have feature of sharing with common stock additional dividends after the preferred stock has been credited. CLASSES Class A has a certain features that doesnt have the Class B.

Preferred Stock Financing:

ADVANTAGES

DISADVANTAGES

1. Dividend will not decrease 2. Dividend is typically higher than a common stock dividend 3. Reimbursed before common Stock in the event of a bankruptcy

1. No voting rights 2. Dividend cannot increase with improved corporate performance

OTHER STOCKS FEATURE and THEIR CHARACTERISTIC TREASURY STOCK - shares that a company keeps in their own treasury. It carries no voting rights, nor to dividends and excluded from computation. 1. 2. 3. 4. 5. 6. Stock Options allowing individual to buy a certain numbr of shares. Acquisition happens when a large firm takes control of small firm. Investments purchase of any asset Stock Split new shares issue to stockholder w/o increasing capital Stock Dividends Warrants right of the holder to purchase stocks at stated price. PAR VALUE STOCK face value of the security or financial Instrument stated value of corporate stock. Most of common stocks today do not have par value Because of tax increase.

NO PAR VALUE - Stock that is issued without the specification of a par Value indicated in the company's articles of incorporation or on the stock certificate itself.

BOOK VALUE - stated value of a stock based on the accounting concepts of recorded value as reflected in the balance sheet. book value can indicate whether a stock is under- or overpriced.

MARKET VALUE current quoted price at which investors buy or sell a share of a common stocks at a given time. also known as the MARKET-PRICE.

ECONOMIC VALUE stock reflected by its current and future earning power, plus any potential recovery of all part of the investment.

online references: www.investopedia.com what are stocks / par value/ residual claims www.pse.com.ph common stocks / preferred stocks www.invest-safely.com investing stocks
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prepared by: Karina Blanco