MGMT 30A Ch 11

Issuing stock

= increase in cash and contributed capital

Gains and losses reflected in…

increases and decreases of contributed capital

Contributed capital

common stock, preferred stock, additional paid in capital, net treasury stock

Earned capital

retained earnings (aka accumulated deficit when negative) and accumulated other comprehensive income (AOCI)

Noncontrolling interests

results from consolidating subsidiaries that are controlled but not completely owned

Common stock

having voting rights to participate in the governance of a company, total number of shares on the face of the balance sheet

Number of shares authorized

upper limit of shares the company can issue, on the articles of incorporation

• can be increased by a shareholder vote

Number of shares issued

actual number of shares that were sold

Number of shares outstanding

= Issued shares - Shares repurchased as treasury stock

Preferred stock

 has some preferences but no voting rights

Dividend preference

 get dividends before common shareholders, if not paid in the year they’re forgone UNLESS they have a cumulative provision

cumulative provision

the forgone dividends from previous year and current years’ dividends need to be paid to them first before the common shareholders

Liquidation preference

if a company fails, creditors are paid and then shareholders = shareholders have more to lose unless they’re preferred and they’ll get paid before common shareholders

• usually at par value but if it’s more than it’s called liquidating value

Call feature

issuer has a right but not obligation to repurchase preferred shares at a specified price (redeemable preferred stock)

Conversion feature

 yield on preferred stock is similar to that of interest rate on a bond or note

• can convert to common stock at a predetermined conversion ratio

Participation feature

preferred shareholders share ratably with common stockholders in dividends

Stock repurchase

= decrease cash and increase Treasury Stock (contra equity account)

Cash dividends

= decrease cash, decrease retained earnings

Effect of issuing common stock on CFF

increase

Effect of acquiring treasury stock on CFF

decrease

Effect of selling treasury stock on CFF

increase

Effect of paying cash dividends on CFF

decrease

Net Income Available for Common Shareholders

= Net Income - Net Income Attributable to Noncontrolling Interests - Preferred Dividends

Net Income Attributable to Noncontrolling Interest

income percentage of company B that company A doesn’t own

Common Shareholders’ Equity

= Total Equity - Equity Attributable to Noncontrolling Interests - Preferred Stock Equity

Book value per share

net book value of company that’s available to common shareholders

• = (stockholders’ equity - preferred stock - equity attributable to non controlling interests) / number of common shares outstanding

Number of common shares outstanding

• = issued common shares - treasury shares

Basic EPS

required by all public companies

Diluted EPS

required if the company has a complex capital structure

Complex capital structure

has certain dilutive securities outstanding

Dilutive securities

securities that can be converted into shares of common stock = would reduce earnings per share on conversion

• includes equity-based pay like stock options and restricted stock, convertible debt, convertible preferred stock