Raising Capital Flashcards
(53 cards)
A commercial bank provides services such as:
- checking and savings accounts
- Business loans
- car loans
- mortgages
- money orders
- safe deposit boxes
An Investment banks are not really banks, but rather Financial Institutions which provide
… financial advice to corporations on topics such as IPO, getting backing through issuance of bonds, etc
Steps when prepping for an IPO:
- Hire an Investment bank
- Shelf Registration with SEC
- Prepare Prospectus
- Put on Road Show
When do you need to provide info for Shelf Registration with SEC
At least 30 days in advance of the offering
SEC will confirm ___ with the shelf registration
that company is not a fraud
the Prospectus lists:
- what IPO price you expect as a range
If shares are OVERSUBSCRIBED that means
there are more potential investors interested in purchasing then are offered for public purchase»_space; indicates price can be on the high range
3 types of shares in an IPO
- Authorized
- Issued
- Outstanding
Authorized Shares are
the amount of shares the SEC allows company to issue for IPO
Issued Shares are
the amount of shares company decides to issue
Outstanding shares are…
Balance of shares that actually go to market in an IPO, the company normally retains some of the issued shares
Market value of a stock is typically ____ than book value
much higher
Outstanding dividends that the company owes shareholders are called…
Dividends in Arears
Why is book value not a good overall measure for a company’s valuation?
relies on historical value and not current value
Lessons Learned from 1929 crash
- Glass Steagall (1934)
- Establishment of SEC
- Establishment of FDIC
- Establishment of Social Security Administration
- Increase margin trading from 5% in 1929 to 50% now
FDIC insures up to
Federal Deposit Insurance Corporation
Insures up to $250k/account/bank
A stock could be delisted when…
It’s value on the NYSE is below $1.00 for over 30 consecutive days
Paid in Capital (Common Stock) =
= IPO Price - Par Value
ex. $22 - $0.01 = $21.99
Value belonging to shareholder
Paid in Capital is also called…
- Premium from Common Stock
- Excess in Par
- Capital Surplus
Why do companies buy back their own shares
- Forces the stock price to increase by creating an artificial demand
- EPS will increase because quantity of outstanding shares decreases
- For psychological reasons, keeps market guessing
- For control reasons
- to fend off hostile takeover
- To give stock options to top executives/employees
- best investment alternative for the company
- Save on dividend payments
The prospectus will be distributed to
Potential Investors
If company has $100 million in bonds with an annual interest payment of 4%, and an EBIT of $14 million, and 40% tax rate, what is their EAT?
$100*0.04 = $4 million EBT = $14 - $4 = $10 million EAT = $10 * (1- 40%) = $6 million
Net income after taxes is also called…
EAT = earnings after taxes
If a company has EAT = $6 million, and 40,000 preferred stock of 3.25%, and 200,000 common shares, then what is their EPS?
EPS = ($6 million - (3.25% * $100 * 40,000) / 200,000 = $5,870,000/ 200,000 = $29.35
