投資學(xué)英文版課件Ch 5 Investing in Common Stock

Chapter5InvestinginCommonStockContentsRightsofShareholder—Section1PreferredStock—Section2CashDividend—Section3StockDividend--Section4StockSplit—Section5Section1

RightsofshareholderContentsCorporateformofbusinessLimitedliabilityVotingrightsResidualclaimPreemptiverightA.CorporateFormofBusinessCharter-specifiestherelationwiththestateCertificateofincorporation;CorporationEstablishedbyastate12Bylaws-specifiestherelationshipwithstockholders,establishedbystockholders43CertificateofIncorporationIdentifynameofcorporationlocationofprincipalofficePurposeNumberofsharesauthorizedThefirmmayissueUSA:ARTICLEOFINCORPORATIONCertificateofIncorporationB.LimitedLiabilityAcorporationisalegalentitythatisseparatefromitsownersobligationCreditormaysuethecorporationfordefault,butcannotsueshareholdersMaximumlossforastockholderistheamountofhisinvestmentPubliclyheldcorporations

VSPrivatelyheldcorporations

PubliclyheldcorporationsStockholdershavelimitedliabilitiesMaximumlossforastockholderishisinvestmentinthisfirmCreditorsofthefirmcan’tsuethestockholdersPrivatelyheldcorporationsStockholdersdon’thavelimitedliabilitiesStockholdersmaypledgetheirpersonalassetstosecureloansCreditorscansuethestockholdersC.RightsofShareholder1.Votingrightstoelectaboardofdirectors2.ResidualClaim3.PreemptiveRightsC-1VotingrightsEntitlementtherighttovote※onmattersofcorporatepolicymaking※onthecompositionofthemembersoftheboardofdirectorsCorporateGovernanceBoardofdirectorsisresponsibletostockholdersManagethebusinessofcorporationCanbecompaniesornaturalpersonManagementisresponsibletoBoardofdirectorCanbecompaniesornaturalpersonEffectofCorporateGovernanceDemocracyrarelyworks

ShareholderdisperseCohesiveBoardofDirectorsandmanagementNewownermayremovetheBoard

EncouragethemanagementtopursuethegoalsatisfyingshareholdersStatutoryvoting法定投票Function?Theprocedureofvotingforacompany'sdirectors

inwhich

eachshareholderisentitledtoonevotepershareforonecandidateforeachseat.?Majoritygroupprevailoverminoritygroup

?ifyouowned100shares,youwouldhave100votesfor1candidateforeachseatCumulativevotingFunctioneachshareholderisentitledonevotepersharetimesthenumberofdirectorstobeelected.ifyouowned100sharesandthere

were

5directorstobeelected,youwouldhave500votesforonecandidateforoneseat.advantageousforminoritygroup

applyalloftheirvotestowardonepersonforoneseatopportunityforminority※cumulativevotinghelpminoritiestoelectrepresentativesbybandingtogetherandcastingforacandidates※provideopportunitiesimpossibleotherwiseC-2ResidualclaimHowFirmprospers,earningsfluctuateFirmfail,lastclaimonassetsafterallcreditorshavebeenpaidRiskinvolvedC-3PreemptiveRightsDefintion※

therightofcurrentstockholdersto

maintainproportionateownership※

Method:rightofferingOffersharesinitiallytoexistingshareholdersShareholdermayselltheirprivilegeExamplerightoffering※Afirmhas1000shares,youown10010%※Additionalsaleof400sharesThenyouhavetherighttobuy40sharesYouown10%ofthefirmalwaysRationalforeliminating123RightofferingisexpensiveInitialinvestorcouldpurchasesharestogetherwithnewcomerCostsaving;flexibilitySection2

PreferredStockContentsPmonDividendarrearageandCumulativePSRetireandrepurchaseA.Differences--PSvs.CSPro:Apositionsuperiortocommonstock1ReceivingDividendbeforecommonstockholders2Uponliquidation,repaymentbeforecommonstockholdersPSvs.CS1Donothaverightstovote2Dividendfixed--cannotsharegrowthofthecompanyDividendexpressedasadollaramountorpercentagePp147-exhhibit5.1DisadvantagesB.CumulativePreferredstockArrear※Ifafirmdoesnothaveearnings,itwillnotdeclaredividend※Omitthedividend,andthedividendissaidto

beinarrearsCumulativePreferredStock:

apreferredstockwhosedividendsaccumulateiftheyarenotpaid.Cumulativevs.noncumulativeNoearningsOmitteddividendpaidinthefutureMisseddividendnottobemadeupnoncumulativecumulativeInfluenceInfinancedifficulty,toerasearrearagemaymakethethingsworse（Weakenthefirm）Oncefirmregainprofitability,erasingbecomesademonstrationofimprovedfinancialconditionRetireandrepurchaseproconFundscanbeusedfreelyDifficultytochangecapitalstructurePreferredstockisperpetualPricehavetobebiduptoinducesellingSolution--callablepreferredstockContentsRightsofShareholderPreferredStockCashDividendStockDividendStockSplitSection3

CashDividendContentsDividendpolicyPayoutratioDistributionofdividendFormofDividendsDividendCashdividendStockdividendAdividendisadistributionofearningsSourcesofinvestor’sReturnCapitalgainA.DividendPolicy1.Regulardividend2.Regular+extra3.

irregulardividendNosetdividendA-1RegulardividendQuarterlydividendpaymentCommonpracticeinUSAExampleTwicedividendpaymentinoneyearothercountries(China,Japan)preliminaryandfinaldividendExampleofCanononp299A-2.Regular+extraReasons※

companyhadstrongcashflow※

managementdon’twanttoincreasethedividend,incaseofdifficultyinmaintainingthehigherdividendFixedassuredSupplementatgoodyearswarrantedA-3IrregulardividendRealEstateInvestmentTrust(REITs)maintaintheirfavorabletaxstatus:nocorporateincometaxstockholderpaythetaxrequirementbytaxlawofdistribution90%ofitsearningstoinordertobetax-exemptedFluctuatesNosetdividendpaymentA-4DividendPolicyItrelatestotheamountandtimingofanycashpaymentsmadetothecompany'sstockholders.

Thedecisionisanimportantoneforthefirmasitmayinfluenceitscapitalstructureandstockprice.DividendPolicyDifferentpolicyA-4DividendPolicy:investorInvestorswhodislikethepolicyselltheirshares;Ifsellers>buyers,pricefall;Managementwillbeawareofinvestor’sattitude.B.DividendPayoutRatioDividendPayoutRatio:theportionofearningspershare(EPS)thatafirmpaysoutasdividendsCompaniesarenotrequiredtopaydividendsSomecompanieshavehighEPS,butreinvestallmoneybackintocompanyExample—apayoutratioIn2002,HersheyFoodsEarned$2.93Paidcashdividendsof$1.26Payoutratio=$1.26/$2.93=43%Retentionratio=(2.93-1.26)/2.93=57%PayoutratiostabilityConsistency※

distributingacertainportionofearningtoinvestor※

higherearningimplieshigherdividends※rarely

increase

difficulttomaintain※reluctanttodecrease

signoffinancialweaknessFigure11.1onPage298Totaltrends:Therisingearningsduring7years;Thesteadyannualincrementsinthecashdividends;Conclusion:Earningsfluctuatemorethanthecashdividend;C.DistributionofdividendC-2KeydatesfordividendC-1ProcessofdistributionC-3PricechangeC-1ProcessofdistributionDirectorsmeetDeclareadividend

shareholderapprovalReceivedividendIfyouwanttobuyashareforitsdividend,thenmakesureyoupurchaseitbeforetheExDate.ThesharewillloseinvalueontheEx–Date,becausethepersonwhobuystheshareonthatdatewillnotgetthedividend

Symbol-X:Ex–DivTwoimportantdatesC-2DateofRecordImportance:Thedatetodeterminewhoistoreceivethedividend;Theownershipbooksofthecorporationareclosed;DateofRecordReceivethedividendpurchaseEx-dividendDateImportance:Thedayonwhichastocktradesexclusiveofanydividends;2tradingdayspriortothedateofrecord;DateofRecordEx-dividendDate2tradingdaysTobuyDividendreceivedTosettleExampleonPage299Tobesurethatyouownstocksatthedate;YoushouldbuybeforethatdateDistributionDateImportance:Thedateonwhichadividendispaidtostockholders;Maybeseveralweeksafterthedateofrecord;July17DeclareSeptember14Record

September25DistributeExampleofBlack&DeckerC-3PricechangeBuyingorsellingstockontheex-dividenddatemaynotresultinawindfallgainorasubstantialloss.DIV%PE100sLASTNETCHGReyn&ReynREYx0.442.017145322.50+0.31How?ExampleofReynoldsandReynoldsstock:Yearlydividend:$0.44;Quarterlydividend:$0.11;Theclosingpriceonthepreviousday:$22.30Thenetchangeshouldbefiguredfromtheadjustedprice:$22.30minusthe$0.11dividend;ChinaT+1,USA:T+3除權(quán)除息日相關(guān)符號含義XR：意為除權(quán)；XD：意為除息；DR：意為除權(quán)除息。如果是分紅利現(xiàn)金，稱做除息，大盤顯示XD××；如果是送紅股或者配股，稱為除權(quán)，大盤顯示XR××；如果是既分紅利又配股，稱為除權(quán)除息，大盤則顯示DR××。這時，大盤顯示的前收盤價不是前一天的實際收盤價，而是根據(jù)股權(quán)登記日收盤價與分紅現(xiàn)金的數(shù)量、送配股的數(shù)量和配股價的高低等結(jié)合起來算出來的Twofurtherproblems:Ifthestockisclosedat$23.00ontheex-dividenddate,whatisthenetchange?Ifthestockisclosedat$22.00ontheex-dividenddate,whatisthenetchangethen?ConsistencyofDiv.PaymentDatesManyfirmstrytomaintainconsistencyintheirdividendpaymentdates.SomemakepaymentsonthefirstbusinessdaysofJanuary,April,July,andOctober.PublicServiceEnterpriseGrouppaysitsdividendsonthelastdaysofMarch,June,September,andDecember.Benefits:Goodforbothinvestorsandthefirms;Section4

StockDividendContentsDefinitionInfluenceofStockDividendsReasonforstockdividendA.DefinitionStockDividendAdividendpaidinstock;1Aformofrecapitalization2Donotaffecttheassetsorliabilitiesofthefirm3EntriesinequitysectionareaffectedB.InfluenceTheentriesintheequitysectionofthebalancesheetareaffected:Thestockdividendtransfersamountsfromretainedearningstocommonstockandadditionalpaid-incapital.TheamounttransferreddependsonThenumberofnewsharesissuedthroughthestockdividend;Themarketpriceofthestock;Balancesheet-1（beforestockdividendiscarriedout）AssetsLiabilities&EquitiesTotalassets

$10,000,000Totalliabilities$2,500,000Equities:$2parcommonstock2,000,000(2,000,000sharesauthorized;1,000,000outstanding)Additionalpaid-incapital500,000Retainedearnings5,000,00010%stockdividend;Marketpriceofthecommonstockwas$20pershare;Balancesheet-2AssetsLiabilities&EquitiesTotalassets

$10,000,000Totalliabilities$2,500,000Equities:$2parcommonstock2,200,000(2,000,000sharesauthorized;1,100,000outstanding)Additionalpaid-incapital2,300,000Retainedearnings3,000,000=($20-2)×100,000+$500,000=$5,000,000-$20×100,000BalancesheetbeforeandafterstockdividendiscarriedoutAssetsLiabilities&EquitiesTotalassets

$10,000,000Totalliabilities$2,500,000Equities:$2parcommonstock2,000,000(2,000,000sharesauthorized;1,000,000outstanding)Additionalpaid-incapital

500,000Retainedearnings

5,000,000AssetsLiabilities&EquitiesTotalassets

$10,000,000Totalliabilities

$2,500,000Equities:$2parcommonstock2,200,000(2,000,000sharesauthorized;1,100,000outstanding)Additionalpaid-incapital

2,300,000Retainedearnings

3,000,00010%stockdividend;Marketpriceofthecommonstockwas$20pershare;=$5,000,000-$20×100,000=($20-2)×100,000+$500,000Conclusion:Nofundshavebeentransferred;Noincreaseincashandnoincreaseinassetsthatmaybeusedtoearnprofits;Allthathashappenedisarecapitalization:

Theequityentrieshavebeenaltered.Theformationofequityhavebeenaltered.C.ReasonforstockdividendTohidemanagement’sreluctancetopaycashdividends;Tomisleadinvestorsthatitincreasestheabilityofthefirmtogrow;Toincreasethenumberofsharesanddeclinethestockprice;ContentsRightsofShareholderPreferredStockCashDividendStockDividendStockSplitSection5

StockSplitContentsDefinitionInfluenceofStockSplitFormsofstockSplitReasonforstockSplitA.DefinitionStockSplitRecapitalizationthataffectsthenumberofsharesoutstanding,theirparvalue,theearningspershare,andthepriceofthestock.1Aformofrecapitalization;2Lowerthestockprice;3Makeitmoreaccessibletoinvestors;B.InfluenceStocksplitisarecapitalization.ItdoesNotaffecttheassetsorliabilitiesofthefirm;Notincreaseitsearningpower;ThewealthofthestockholderisincreasedonlyifInvestorspreferlower-pricedstockswhichwillincreasethedemandforthisstock.Balancesheet-1AssetsLiabilities&EquitiesTotalassets

$10,000,000Totalliabilities$2,500,000Equities:$2parcommonstock2,000,000(2,000,000sharesauthorized;1,000,000outstanding)Additionalpaid-incapital500,000Retainedearnings5,000,000A2-for-1stocksplit;Marketpriceofthecommonstockwas$20pershare;Balancesheet-2AssetsLiabilities&EquitiesTotalassets

$10,000,000Totalliabilities$2,500,000Equities:$1parcommonstock2,000,000(2,000,000sharesauthorized;2,000,000outstanding)Additionalpaid-incapital500,000Retainedearnings5,000,000Conclusion:Nofundshavebeentransf