Chapter 1.1 Flashcards
(102 cards)
1
Q
Issuer
A
An organization that distributes and sells securities to investors
2
Q
Outstanding shares
A
The number of shares held by the company’s shareholders
3
Q
Equity
A
Formal term for ownership
4
Q
Security
A
Legal term for a specific type of investment
5
Q
-Investors can obtain capital appreciation
- Issuers paying cash dividends to their stockholders
A
Two ways to make money on common stock
6
Q
Retained earnings
A
Profits ______ by a company, often used to expand and reinforce business operations.
Earnings that are not paid to investors by dividend
7
Q
Common stock
A
Equity investment (ownership)
8
Q
Outstanding shares
A
The number of shares held by the company’s shareholders
9
Q
Cash
Stock
Product
A
Common stocks may pay dividends in three forms:
10
Q
Quarterly
A
Cash dividends are usually paid…
11
Q
Proxies
A
Voting materials provided to investors who do not or cannot attend the annual shareholder meeting
12
Q
Common stockholders have the right to…
A
Vote for the Board of Directors
13
Q
Financial reporting
A
Publicly traded companies must file ongoing financial disclosures
14
Q
10-K annual report
A
Audited financial report
15
Q
10-Q quarterly report
A
Unaudited financial report
16
Q
Security
A
A formal way of referring to an investment
17
Q
- Stocks
- Bonds
-Mutual funds - Options
- ETFs
A
5 Examples of securities
18
Q
- Authorized
- Issued
- Outstanding
- Treasury
A
4 Types of shares
19
Q
Authorized shares
A
These shares represent the number of shares a company can offer to investors.
20
Q
Issued shares
A
Shares sold to investors
21
Q
Outstanding shares
A
shares owned by investors
22
Q
Pre-emptive right
A
gives you the right to buy the newly-issued shares before they’re publicly offered.
23
Q
Underwriters
A
help organizations market and sell their securities to investors.
24
Q
Rights
A
-Right to purchase new shares at at a fixed price
- Intrinsic value at issuance
-Little time value
- Short-term (typically 90 days or less)
- Possible outcomes
Exercise, trade, or expire
25
Warrants
-Right to purchase new shares at a fixed price
-No intrinsic value at issuance
-Time value exists
-Long-term (typically 5 years or longer)
-Possible outcomes for warrants:
Exercise, Trade, or Expire
26
Dilutive actions
Any action reducing percent ownership
27
Examples of dilutive actions
-Issuing new shares
-Issuing convertible securities
28
Stock splits
- Legal method for issuers to manipulate stock prices
- Shareholders maintain the same proportionate ownership
- Require shareholder approval
29
Forward stock splits
- More shares outstanding
- Lower price per share
- Same overall value
30
Reverse stock splits
- Fewer shares outstanding
- Higher price per share
- Same overall value
31
1.Secured debt holders
2. General creditors (debenture holders)
3. Junior creditors (junior debenture holders)
4. Preferred stockholders
5. Common stockholders
What is the Liquidation priority?
32
Transfer agent
- Responsible for maintaining the book of stockholders
- Issues and redeems shares when a transaction occurs
- Distributes proxies (voting materials) to stockholders
- Distributes dividend payments to stockholders
33
Negotiable securities
- Trade in the secondary market between investors
- Common stock is negotiable
- Most securities are negotiable
34
Redeemable securities
May only be bought and sold with the issuer
35
Issuer
The organization responsible for creating, registering, and selling a security.
36
Primary market
- Sale of securities where issuer keeps proceeds
- Where initial public offerings (IPOs) occur
37
Secondary market
- Sale of securities where a party other than the issuer keeps proceeds
- Where securities trade after their initial sale
38
First market
Listed stocks trading on exchanges
39
Second market
Unlisted stocks trading OTC
40
Third market
Listed stocks trading OTC
41
Fourth market
Institutions trading through ECNs (Electronic Communications Networks)
42
ECNs (Electronic communication networks)
electronic bulletin boards where institutional trades are matched on an agency basis. They are open 24 hours a day and match orders on an agency basis (connecting buyers and sellers while earning commissions)
43
Broker dealers
financial organizations that primarily help customers buy and sell securities.
44
Vanguard Group
Charles Schwab
Fidelity Investments
JPMorgan Chase & Co.
Merrill Wealth Management
What are the 5 largest broker-dealers (in 2024)
45
Introducing brokers
smaller broker-dealers that primarily maintain relationships with customers and facilitate their trades.
46
Clearing brokers
broker-dealers that maintain custody, process orders, and provide clearing services in addition to facilitating trades for their customers (and the customers of introducing brokers).
47
Clearinghouse
an organization responsible for ensuring trades are properly finalized.
48
Depository Trust & Clearing Corporation (DTCC)
the primary clearinghouse used in the securities markets.a non-profit, industry-owned organization that clears most trades in the financial markets.
- It clears over $2.3 quadrillion of trades annually
49
Regular-way and cash settlement
Two types of settlement
50
Regular-way settlement
occurs on the first business day after the transaction (known as T+1 - trade date plus one business day). Ensure you don’t count weekends or holidays towards settlement time frames, as settlement only occurs over business days.
51
Cash settlement
investors who need their trades finalized quickly. As long as a ____ _________ trade executes before 2:30 pm ET, the trade settles the same day. Broker-dealers may charge a little extra to perform this trade, but it is available to investors.
52
Cash dividends
earnings (profits) passed on to stockholders
53
Declaration date
Record Date
Payable date
The Board of Directors (BOD) determines what 3 things when it comes to dividends?
54
Declaration date
the day the BOD publicly declares the dividend
55
Record date
the day a stockholder must be officially “on the books” (the transfer agent’s book) as a shareholder.
56
Ex-dividend date
the first day the stock trades without the dividend. The record date is directly related to this
57
Do not receive the dividend
When it comes to the ex-dividend date, investors buying the stock....
58
Keep the dividend
When it comes to the ex-dividend date, investors selling the stock....
59
Payable date
The day when the dividend payment is made to the stockholders.
60
New York Stock Exchange (NYSE) or FINRA.
The ex-dividend date is based on settlement, which is controlled by the...
61
Financial Industry Regulatory Authority (FINRA)
a self-regulatory organization (SRO), which means they are empowered to enforce laws and regulations in finance. They regulate finance professionals and exchange markets.
62
Selling short
allows investors to bet against an investment and make money if market values fall.
63
Bear market
A market that generally declines over an extended period of time
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Bull market
A market that generally increases over an extended period of time
65
Leverage
Investing with borrowed funds, which amplifies gain and loss potential
66
American Depositary Receipts (ADRs)
- US-registered receipts for foreign investments
- Created by domestic financial firms with foreign branches
- Trade in US dollars in US markets
- Subject to currency exchange risk
- No voting or pre-emptive rights
- Foreign government tax withholding creates a US tax credit
67
Tender offers
utilized when an investor, group of investors, or an organization aims to obtain a significant portion of an issuer’s stock.
68
Hostile takeover
- An unwanted attempt from one party to take over an issuer’s business
- Typically involves the outsider:
- Purchasing significant stock positions
- Instilling hand-picked individuals into BOD positions
- New board structure bending to the will of the outsider
69
Stock buybacks
- Issuer repurchases its shares from market
- EPS increases with fewer shares outstanding
70
Earnings per share (EPS)
- Earnings / outstanding shares
- Measures profitability on a per share basis
71
Capital appreciation and income from cash dividends
What are 2 benefits of common stock?
72
Capital appreciation
Investment value rises above the cost
73
Blue chip companies
Large and successful companies that have been in business for several years
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Systematic risks
Risks that apply to the entire stock market
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Market risk and Inflation risk
What are 2 systematic risks
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Market risk
When an investment's value declines due to an economic circumstance
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Inflation risk
when rising goods and services prices negatively impact an investment.
78
Consumer price index (CPI)
The government measures inflation through the ________
79
Hedge
Protection from risk
80
Non-systematic risks
affect specific investments or sectors, not the entire market.
81
Concentration risk
Lack of diversification
Amplifies relevant non systematic risks
82
Financial risk
High debt levels negatively affect company performance
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Business risk
Products or services in low demand due to competition or mismanagement
84
Regulatory risk
Potential or current government regulation negatively affects an investment
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Legislative risk
New domestic law or regulation negatively affects a security
86
Political risk
Foreign government instability negatively affects a security
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Liquidity risk
Also known as marketability risk, this is an inability to sell a security without dropping price dramatically
88
Fundamental analysis
inspects the inner workings of a company, including its products and/or services, business structure, and finances.
89
Current assets
include cash and any item expected to be turned into cash easily within one year.
90
Current liabilities
any bills or payments due to be paid within one year.
91
Cash
Cash equivalents
Accounts receivable
Inventory
Prepaid expenses
What are some typical current assets on a balance sheet?
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Accounts payable
Wages payable
Taxes payable
Interest payable
Principal payable (within one year only)
What are some examples of current liabilities on a balance sheet
93
Fixed assets
long-term tangible (physical) assets that are expected to be utilized for at least one year
94
Real estate
Land
Vehicles
Equipment
Computer equipment
Office equipment
Furniture
What are some examples of fixed assets?
95
Intangible assets
These are long-term intangible (non-physical) assets that are expected to be utilized for at least one year
96
Trademarks
Patents
Copyrights
Trade secrets
What are some examples of intangible assets
97
Long-term liabilities
These are bills, loans, or payments due to third parties in more than one year (sometimes 20-30 years later).
98
- Long-term debt securities (bonds and notes > 1 year)
- Mortgages
- Pensions
What are some examples of long term liabilities?
99
Par value of outstanding stock
Capital in excess of par
Retained earnings
What are some examples of stockholder's equity?
100
Price to Earnings ratio (PE ratio)
Market price/earnings per share
101
High PE ratios
- May indicate an overpriced investment
- Typical of growth companies
102
Low PE ratios
- May indicate an underpriced investment
- Typical of value companies
