FAR 1 Module 2 Terms

Common Stock

Ownership shares in a company that give holders voting rights and a residual claim on assets and earnings.

Preferred Stock

A class of stock with priority over common stock for dividends and liquidation

Par Value

A nominal value assigned to stock (e.g., $5 par), used for legal and accounting purposes, not market value.

Shares Outstanding

Total number of shares currently held by investors (excluding treasury stock).

Shares Issued

Total shares a company has ever issued (includes treasury stock).

Treasury Stock

Previously issued shares that the company has repurchased and holds.

Capital Structure

The mix of a company’s financing (debt, preferred stock, common stock).

Dividend

A distribution of earnings to shareholders.

Cash Dividend

A payment of cash to shareholders.

Stock Dividend

Distribution of additional shares instead of cash.

Stock Split

Increase in number of shares with proportional decrease in price.

Cumulative Preferred Stock

Preferred stock where unpaid dividends accumulate and must be paid before common dividends.

Dividends in Arrears

Unpaid cumulative preferred dividends from prior periods.

Earnings Per Share (EPS)

Measure of profit earned per share of common stock.

Basic EPS

(Net Income – Preferred Dividends) ÷ Weighted Avg Shares

Diluted EPS

EPS assuming all potentially dilutive securities are converted into common stock.

Dilutive Securities

Financial instruments that decrease EPS when converted.

Examples:

• Convertible bonds

• Convertible preferred stock

• Stock options

Anti-Dilutive Securities

Securities that increase EPS → ignored in diluted EPS.

Weighted Average Shares

Average number of shares outstanding during the period, weighted for time.

Exercise Price

Price at which an option holder can purchase stock.

Market Price

Current trading price of stock.

In-the-Money Options

Market price > exercise price → dilutive

Out-of-the-Money Options

Exercise price > market price → anti-dilutive

Treasury Stock Method

Method used to calculate dilution from stock options.

Assumes:

• Options exercised

• Company buys back shares at market price

Preferred Dividend

Dividend paid to preferred shareholders before common shareholders.

Required Dividend

Dividend amount based on preferred stock terms (even if not paid).

Net Income Available to Common

Net Income – Preferred Dividends

SEC (Securities and Exchange Commission)

U.S. government agency that regulates financial reporting for public companies.

Form 10-K

Annual report filed with the SEC containing audited financial statements.

Form 10-Q

Quarterly report with unaudited financial statements.

Form 8-K

Report filed to disclose major events (e.g., auditor change, stock issuance).

Form S-1

Registration statement used for initial public offerings (IPO).

Proxy Statement (Form 14A)

Document sent to shareholders for voting matters.

Form 6-K

Report used by foreign companies listed in the U.S.

Large Accelerated Filer

Public company with:

• Public float ≥ $700M

• Fastest reporting deadlines

Accelerated Filer

Public float between $75M and $700M.

Non-Accelerated Filer

Smaller public companies with longer deadlines.

Interim Financial Statements

Financial reports covering less than one year.

Interim Period

A reporting period shorter than a full year (e.g., quarter).

Condensed Financial Statements

Simplified financial statements with fewer details (used in 10-Q).

Allocation

Spreading a cost across multiple periods benefiting from it.

Matching Principle

Expenses should be recorded in the period they help generate revenue.

Net Income

Total profit after all expenses.

Income from Continuing Operations

Income from core business activities that are ongoing.

Discontinued Operations

Income/loss from parts of the business that have been sold or shut down.

Off-Balance Sheet Arrangement

Financial obligations not recorded directly on the balance sheet.

Unregistered Securities

Securities sold without SEC registration (must still be disclosed via 8-K).

Certifying Accountant

External auditor responsible for auditing financial statements.