Chapter 6: Stocks

Preemptive Right

The right afforded an investor in common stock to maintain his or her percentage ownership in a company by buying proportionate number of shares of any future issue of the security.

Primary Market

Where existing public companies issue new shares of stock.

Secondary Market

Where existing shares of public companies trade on a daily basis.

Initial Public Offering IPO

Where a private firm offers ownership in the form of common equity or preferred stock to the public.

Capital Gain Yield

The percentage return from capital appreciation or gain in price over the year.

Dividend Yield

The percentage gain from the dividend payment for the year.

Residual Claim

Shareholders have “residual claim” on assets (in case of distress, only paid after all other claimholders are paid).

Voting Rights and Ownership

Board of Directors, auditors, executive compensation, and other key issues. 

Free Cash Flow

The cash generated by a firm from operations and after all necessary investments are made in working capital and assets. Represent the cash created before any investor distributions are made.

Dividends

Cash distributed to shareholders.