Shareholders' Equity Notes

Shareholders' Equity

Shares Authorized: The upper limit on the number of shares the corporation can issue.
- Established in the articles of incorporation.
Shares Issued: Actual number of shares that have been sold to shareholders.
Shares Outstanding: The number of shares issued less the number of shares repurchased as treasury stock.
The relationship between shares:
- Shares Authorized = Shares Issued + Shares Unissued
- Shares Issued = Shares Outstanding + Treasury Shares

Companies buy back their own common stock.
Options:
- Retire the shares.
- Keep them as treasury stocks (contra-SE account).

Shareholders' equity:
- Common stock and additional paid-in capital, $0.00001 par value: 50,400,000 shares authorized; 15,116,786 and 15,550,061 shares issued and outstanding, respectively
- Accumulated deficit
- Accumulated other comprehensive loss

Did Apple repurchase its own common stock during fiscal year 2024?
- Yes; determined by observing the decrease in the number of shares outstanding.
Did Apple keep the shares repurchased as treasury stock or did Apple retire the shares?
- Retired shares; indicated by no increase in the number of treasury stock.

Cash, cash equivalents, and restricted cash and cash equivalents, beginning balances
Operating activities:
- Net income
- Adjustments to reconcile net income to cash generated by operating activities:
  - Depreciation and amortization
  - Share-based compensation expense
  - Other
- Changes in operating assets and liabilities:
  - Accounts receivable, net
  - Vendor non-trade receivables
  - Inventories
  - Other current and non-current assets
  - Accounts payable
  - Other current and non-current liabilities
- Cash generated by operating activities
Investing activities:
- Purchases of marketable securities
- Proceeds from maturities of marketable securities
- Proceeds from sales of marketable securities
- Payments for acquisition of property, plant and equipment
- Other

Includes a graph illustrating the number of companies buying back stock and the utilization rate.

To increase stock price if management feels the stock is undervalued.
- Stock price is closely linked to executive compensation.
To increase earnings per share (EPS).
It’s a tax-efficient way to return capital to investors.
- Tax is only applicable on the actual sale of shares and receiving dividends.

Berkshire Hathaway Authorizes Repurchase Program
Berkshire Hathaway to repurchase Class A and Class B shares of Berkshire at prices no higher than a 10% premium over the then-current book value of the shares.
Repurchases will enhance the per-share intrinsic value of Berkshire shares, benefiting shareholders who retain their interest.
Berkshire plans to use cash on hand to fund repurchases and repurchases will not be made if they would reduce Berkshire’s consolidated cash equivalent holdings below $20 billion.

Illustrates stock performance relative to Dow Jones Industrial Average, S&P 500, and DOW.

Increase the number of shares outstanding => Lower price per share
E.g., 2-for-1 split
- Number of shares is doubled (x2)
- Per share amount (e.g., price per share, EPS) is halved (÷2)
Example:
- 400 Pie, 4 shares at $100/share
- 2-for-1 Split: 400 Pie, 8 shares at $50/share

True Split
- Adjust the following numbers proportionately:
  - Number of shares, including the no. shares authorized, issued, and outstanding.
  - All per share amount, including EPS, dividend per share, stock price per share, par value per share
Split effected in the form of a stock dividend
- Same as true split, except no change in par value per share (state regulation)

The most expensive stock (with the highest share price).
Never had a stock split.
Berkshire Hathaway Class B (BRK.B)
- It used to be the second most expensive stock until 2010 – had a 50-for-1 split.

Why do a stock split?
- Increase shareholder base (more affordable to small investors)
- Increase stock liquidity
- Signal management’s expectation on future growth

What was the ratio of the split? How can you tell?
- 4-for-1
Which numbers on the I/S, B/S, and SSE are affected by the stock split?
- I/S: EPS, shares used in computing EPS
- B/S: shares authorized, issued, outstanding
- SSE: dividend per share
Compare “common stock and APIC” and “Total shareholders’ equity” for FY 2019 reported on 2020 10K and 2019 10k, are they different?
- They are the same!