Long-term Financing

Common Stock

Refers to stock that has no preference in receiving dividends or in bankruptcy.

Voting Rights

Rights shareholders have to elect directors who hire managers, typically 'one share, one vote'.

Straight Voting

Shareholders cast votes for each candidate individually, with 1 share entitling 1 vote.

Cumulative Voting

Directors are elected all at once with the total number of votes equaling the shares owned times the number of directors.

Cumulative Voting in Korea

Shareholders with over 3% ownership can request cumulative voting, but only 3.9% of large firms allow it.

Dual-Class Stocks

A structure where U.S. firms issue two classes of common stock with different voting rights, violating the 'one share, one vote' rule.

Preferred Stock

An equity claim that must be paid before common stockholders, often fixed dividends with no voting rights.

Market Value of Equity

A forward-looking measure based on future expected dividends, calculated as shares outstanding times current market price.

Long-Term Debt

Debt with an original maturity greater than 1 year; includes bonds, notes, debentures, and is not an ownership interest.

Indenture Agreement

A legal agreement specifying the rules between the firm and lender in a debt contract, often including covenants.

Dividend Policy

A company's policy regarding the distribution of profits to shareholders as dividends.

Market Capitalization

The total market value of a company's outstanding shares, calculated as share price times the number of shares.

Equity Financing

Raising capital by selling shares of stock in the company.

Debt Financing

Raising capital through borrowing, such as issuing bonds or taking out loans.

Stock Split

A corporate action in which a company divides its existing shares into multiple new shares to increase liquidity.

Reverse Stock Split

A corporate action where a company reduces the number of its outstanding shares, often leading to an increase in share price.

Initial Public Offering (IPO)

The process by which a private company offers shares to the public for the first time.

Share Buyback

When a company repurchases its own shares from the marketplace, reducing the number of outstanding shares.

Asset Allocation

The process of distributing investments among different asset categories, such

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations, calculated as current assets divided by current liabilities.

Price-to-Earnings Ratio (P/E)

A valuation ratio calculated by dividing the current share price by its earnings per share (EPS), indicating how much investors are willing to pay for a dollar of earnings.

Return on Equity (ROE)

A financial metric that measures a company's efficiency in generating profits from shareholders' equity, calculated as net income divided by shareholder equity.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its stock price, calculated as annual dividends per share divided by the price per share.

Beta

A measure of a stock's volatility in relation to the overall market; a beta of 1 indicates that the stock's price moves with the market.

Book Value

The net asset value of a company, calculated as total assets minus total liabilities, representing the equity value of the company.

Market Efficiency

The concept that stock prices reflect all available information, making it impossible to consistently achieve higher than average returns.

Arbitrage

The practice of taking advantage of price differences between markets by buying low in one market and selling high in another.

Capital Asset Pricing Model (CAPM)

A model used to determine the expected return on an asset based on its systematic risk, represented by the formula: expected return = risk-free rate + beta * (market return - risk-free rate).

Option

A financial derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified timeframe.