a304 ch. 10 packet (stockholders' equity)

sell stock to raise capital, easily transfer ownership, limited liability

advantages of the corporate form of ownership

double taxation, more paperwork

disadvantages of the corporate form of ownership

1. founder(s), 2. friends/family, 3. angel investors, 4. venture capitalists, 5. initial public offering

stages of equity financing for a corporation

1. right to vote, 2. proportional share (dividends if paid, assets if company dissolves)

what rights do shareholders (common stock) of a corporation have?

less paperwork/filings with SEC, less diverse shareholders

advantages to being a privately traded company instead of a publicly traded company?

common stock

represents one unit of ownership

1. authorized, 2. issued, 3. outstanding, 4. treasury

four types of stock

authorized

shares available to sell (issued + unissued)

issued

shares actually sold (outstanding + treasury)

outstanding

shares issued and held by investors

treasury

shares issued and repurchased by the company

par value

the legal capital per share of stock assigned when the corporation is first established

no

some states allow ___ par value

not equal

par value is _ to market value of common stock (price)

low

typically, par value is set very ___

additional paid-in capital (APIC)

represents the amount investors pay above that par value when buying shares

APIC =

cash (# x $) - common stock (# x par)

owner's equity

what part of DEA LOR is APIC in?

preferred stock (PS)

has preference over common stock (CS) in receiving dividends and distribution of assets if the corporation is dissolved

more

par value of PS is usually much ___ than par value of CS

preferred stock dividends

typically paid quarterly and are cumulative

preferred stock dividend =

preferred stock par value x set dividend rate

par

preferred stock must have ___

treasury stock

when a company repurchases its own stock, it is a contra-equity account

boost underpriced stock, boost eps, distribute cash to investors without a dividend, satisfy employee stock ownership plans (ESOPs)

why would a company want to repurchase its own shares?

EPS =

(NI - preferred dividends) / outstanding shares

treasury stock =

shares x repurchase price

cash =

shares x resale price

retained earnings

represent earnings that have not been distributed to shareholders

RE =

all NI - all dividends

end RE =

beg RE + NI - dividends

accumulated deficit

a negative balance in the RE

start-up

no excess cash, no dividends

growth

prefer to reinvest earnings, no dividends

mature/steady

less opportunity to reinvest, more dividends

decline

cut, no dividends

declaration date

date board of directors announces next dividend(s)

date of record

date company creates its list of SH of record

payment date

date cash distribution is made

stock dividend (rare)

when a corporation distributes additional shares of their own stock (no net effect on BS)

percentage

typically, a stock dividend is given as a ___

stock split (more common)

a large stock dividend (no net effect on BS)

increases

when a stock split occurs, the number of shares issued ___

decreases

when a stock split occurs, the stock price per share ___

align with stock index criteria, make shares more affordable + more accessible to a broader range, give impression of growth + momentum, increase demand which may raise prices

why would a company declare a stock split?

stock-based compensation

a reward companies give to employees to align employee incentives

restricted stock units (RSUs)

a common type of stock-based compensation that grants employees a specific number of company shares subject to a vesting schedule (and potentially other stipulations)

fair value of RSUs at grant date

how much compensation expense should be reported?

evenly over vesting period

when should the compensation expense be recorded?

statement of stockholders' equity

shows change in each equity account over time

SHE on BS

presents the balance of each equity account at a point in time

return on equity

measures the ability of management to generate earnings from the resources that owners provide

dividend yield

measures how much a company pays out in dividends relative to its share price

earnings per share

measures net income earned per share of common stock

price-earnings ratio

indicates how the stock is trading relative to its current earnings