Chapter 10 - Business Structures and Stockholders' Equity

These flashcards cover the key concepts related to the advantages and disadvantages of different business structures, stockholders' equity, types of stock, dividends, and financial ratios relevant to corporate finance.

Sole Proprietorship

A business owned and operated by a single individual.

Partnership

A business structure where two or more individuals share ownership and responsibilities.

Corporation

A legal entity that is separate from its owners, providing limited liability protection.

Advantages of a Corporation

1. Limited liability for owners 2. Ability to raise capital through stock issuance.

Disadvantages of a Corporation

1. Double taxation of income 2. More regulations and reporting requirements.

Stockholder Rights

1. Right to vote on corporate matters 2. Right to receive dividends 3. Right to inspect corporate records.

Paid-in Capital

The total amount of money that shareholders have invested in the company.

Retained Earnings

The accumulated net income that is retained in the company rather than distributed as dividends.

Treasury Stock

Shares that were once a part of the outstanding shares but were later repurchased by the company.

Authorized Stock

The maximum number of shares that a corporation can issue according to its corporate charter.

Issued Stock

The shares that have been sold to and are held by shareholders.

Outstanding Stock

Shares that are currently held by shareholders, excluding treasury stock.

Treasury Stock

Shares that have been repurchased by the issuing company.

Cumulative Dividends

Dividends that must be paid to preferred stockholders before any dividends can be distributed to common stockholders.

Noncumulative Dividends

Dividends that do not accumulate; if the company does not pay them in certain years, they are lost.

Treasury Stock Account

An account that reflects the cost of shares repurchased by the company, typically with a debit balance.

Retained Earnings

The portion of a company's profits that is held in the company for reinvestment and not paid out as dividends.

Dividends Declaration Date

The date on which a company's board of directors announces its intention to pay a dividend.

Stock Split

A corporate action that increases the number of shares outstanding by dividing existing shares.

Stock Dividend

A payment made in the form of additional shares rather than cash.

Return on Equity (ROE)

A measure of financial performance calculated by dividing net income by shareholders' equity.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Earnings per Share (EPS)

A measure of a company's profitability calculated by dividing net income by the number of outstanding shares.

Price-Earnings Ratio (PE)

A valuation ratio calculated by dividing the current share price by the earnings per share.