Must Study 1 Flashcards
(95 cards)
What is the Order of Asset Distribution
1- Taxes 2- Secured Debt 3- Unsecured Debt 4- Preferred Stockholders 5- Common Stockholders
Which corporate Asset has the greatest risk (in liquidation)?
Common Stocks
What Right do Common Stockholders NOT have?
The right to vote for senior officers or senior management. Person’s who hold these positions are selected by the Board of Directors.
Common stockholders DO have the right to elect the Board of Directors.
If a client’s investment objective is capital appreciation. What would you recommend as a class of investment for this client?
Common stock. always offers the best opportunity for capital appreciation. Particularly when compared to Preferred stock and bonds.
Is Common Stock “callable”?
Common Stock is NEVER CALLABLE!
What is the name of the stock that:
1- Doesn’t vote.
2- Does not receive dividends
3- Is not used to calculate Earnings Per Share,
4- Appears on the balance sheet as a deduction from issued stock?
Treasury Stock (or Repurchased Stock)
A company buys back its shares that are traded on the open (Secondary market). BTW this is perfectly legal!
it basically “sits” on the balance sheets of the company.
CAUTION: DO NOT confuse Treasury Stock with anything related to U.S. Treasury Securities or Treasury Securities.
Issued stock - (minus) Treasury stock = ???
Outstanding stock
Issued by a nationally known company with a reputation for quality management, products, and services?
Blue Chip stocks
a) High percentage of retained earnings.
b)Pay little or no dividend resulting in low dividend yield and increases shareholder’s equity
c) Generally have a high P/E ratio
d) Stock price may fluctuate widely and typically have high volatility
e) Emerging growth company is a fast growing company.
Generally high risk, high return, and high failure rates.
Issued by a company that is expected to have an above-average increases in revenues and earnings.
Growth Stocks
Heavily affected by normal business and economic cycles. Rise and decline along with the rise and decline in the economy.
a) Auto manufacturers
b) Steel companies
c) Appliance manufacturers
d) Housing companies
e) Paper companies
f) Tool and die manufacturers
Cyclical Stocks
The opposite of Cyclical stocks. Stocks that move in the opposite direction of the economy.
a) Gold mining companies
b) Budget retailers (Walmart)
c) Temp agencies
Countercyclical stocks
Issued by a company that is resistant to normal business cycles and general stock market fluctuations. No significant increase or growth, but stable and consistent earnings year after year can be expected.
a) Tobacco companies
b) Utilities
c) Food companies
d) Pharmaceutical companies
e) Auto-repair companies
Defensive/Non-cyclical stocks
Provide electricity, gas, water, etc. to customers.
a) Generally, offer above-average yields, but less capital appreciation compared to growth stocks.
b) Highly leveraged (debt) because customers are dependent.
c) Changes in interest rates will have more effect on common stock.
High levels of debt mean high cost of operations (includes interest costs).
Utility stocks
Stocks that are undervalued and their price can increase in value suddenly due to a number of reasons.
1- New management
2- Introduction of a popular new product
3- Discovery of a natural resource on corporate property.
Special Situations
Receipts traded in the U.S. for foreign stocks held in bearer form by an American bank in the foreign country.
a) Have no voting priveledge
b) Dividends paid in U.S. dollars, not the foreign currency
c) Taxed as security and gains & losses reported on IRS form 1099b
American Depository Receipts (ADR’s)
What is the formula for calculating Stock Splits?
Ex: 200 shares of ABC stock trading at $20 pr/shr there is a 2:1 split.
Take number of shares 200 over 1 x (times the split ratio) 2/1 = ???
200 / 1 = 200
2 / 1 = 2
2 x 200 = 400
What is the formula for Rights Calculation? The calculation that will allow you the privilege to purchase additional stock of new additional offering by a company?
Outstanding shares / New shares = # of Rights needed
to purchase each new
share of stock
Preferred stock. Which classes of Preferred stock are “beneficial to” the owners of preferred stock?
Cumulative, Convertable, and Participating Preferred
Which Preferred stocks are more “beneficial to” the issuer?
Callable
What 4 securities are dividends paid on?
Common stock, Preferred stock, Mutual Funds, ADR’s.
What are dividends not paid for? What securities?
Warrants and Bonds
It the payment made to a bond owner a dividend or interest?
Interest
What does it mean to be Long Stock?
You receive dividends and stock splits (because you bought share is a normal fashion and held the stock as normal… You didn’t borrow stock from broker and then resell as in the Short position).
What does it mean to be Short Stock (or Short the stock)?
You are Short stock if you borrow the stock from your broker, and sell it on the open market (at a higher price) make a profit and then purchase more of the stock and return the stock to your broker.
IMPORTANT: You are not entitled to the dividend(s) or the stock splits that might occur (unlike those who hold the Long position).
