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Flashcards in Unit 1 Deck (59):
1

Shareholders elect

Shareholders' auditors, board of directors

2

Board of directors appoint

Management, risk review committee, audit committee, human resources, governance and nominating committee

3

Corporations

Legal entity
Can be incorporated at federal or provincial level
Identified by limited, ltd., incorporated, inc., corporation, corp.

4

Private corporation

Can be formed by one or more people
Majority of directors must be Canadian residents
Cannot sell shares or securities to the general public

5

Public corporation

Issues securities for public distribution
Must file a prospectus with the appropriate securities commission
Must employ outside auditors
Must distribute semi-annual financial statements

6

Federal corporation

Private and public operations may be incorporated federally under the Canada Corporations Act

7

Corporations advantages

Limited liability
Specialized management to organize
Transferable ownership
Continuous existence
Separate legal entity
Possible tax advantage (tax breaks)
Easier to raise capital

8

Corporation disadvantages

Closely regulated
Most expensive form
Charter restrictions
Extensive record keeping necessary
Double taxation of dividends
Possible development of conflict between shareholders and executives

9

The companies that were the origins of modern corporation

1. Hudson's Bay Company
2. British East India Company
3. Dutch, East India Company

10

Hudson's Bay Company

1670
Received charter from government of England
Able to come here and control North American fur trade for centuries

11

British East India Company

1600
Received charter
Monopolized trade with South Africa
Protected by British navy (secure routes, enabled colonial ventures)

12

Dutch East India Company

1602
Spice trade from East Indies (India and further east)
Paper receipts issued for share ownership
Shares on the original Amsterdam Exchange
Limited liability

13

Dividend Yield Formula

Annual dividend payment / current share price

14

Why buy stocks

Yields large growth rates

15

Two ways of earning from stocks

Dividends
Capital gains

16

Return on investment formula

(Dividend + capital gain) / original purchase share price

17

Which stock market still has a trading floor?

New York Stock Exchange (NYSE)

18

What is a traditional stock market?

Trading floor where traders use hand signals to signal trades

19

Stock exchange process

1. Client places order with broker
2. Orders are matched electronically by Exchange computer
3. Broker informs client the trade price plus commission

20

Role of brokers and intermediaries

Buy and sell stock for others
Only allowed access if they work for Participating Organizations

21

Participating organizations are

Qualified firms

22

History of stocks

Companies and joint ventures were made to finance the building of ships
Few wanted to assume entire disk so it was instead divided into shares/stocks

23

What is it called with a corporation sells their first shares to the public?

Primary distribution or Initial Public Offering

24

IPO

Initial public offering

25

Primary market

A corporation selling shares for market capitalization

26

Secondary market

Occurs when buying/selling on the exchange

27

Corporate structure

Shareholders > board of directors > president > Vice President

28

Discount broker

Less commission
No advice

29

Full service broker

More commission
No advice

30

Day order

Expires at the end of the day

31

At the market order

Specifies number of shares to be bought or sold at the best price then available

32

Limit order

Specifies max. Price for buying or selling

33

Settlement process

Buyers usually have 3 days to pay
Buyer -> pays amount -> buyer's broker -> gives everything less commission -> brokerage firm of settler -> gives everything less commission -> seller -> shares ownership

34

Wall Street purpose

Allows people to cash in their securities

35

Why are transports and utilities important?

Tells you that there's a lot of economic activity occurring

36

Blue-chip company characteristics

Low risk
Normally pay dividends
Financially stable
Large employers
Strong brand
Predictable earnings
Bellwethers
Well-know products or services

37

Types of securities fraud

Insider trading
Misleading investors

38

Dollar cost averaging

Making small amount investments over a long period of time on a regular, fixed schedule

39

Realized gains

When you sell your shares and turn it into cash

40

Unrealized gain

When your shares have gone up in price per share but you haven't sold it yet

41

Transfer agent

Company appoints transfer company
Keep track of shareholders' info to send out dividends and inform them of annual meetings

42

Initial public offering

Becoming incorporated
Pay stock exchange to list own shares and trade them
"Underwriters" (investments, banks) provide cash upfront to buy large blocks of the shares and then these shares are resold and distributed through secondary market

43

Only IPO will impact balance sheet, what doesn't?

Trades in the secondary market

44

Capital markets

Stock and bond markets
Governments and corporations may borrow money by selling bonds to individual and institutional investors

45

Common shares

May pay dividends
Voting privilege
Last priority in getting paid in case of bankruptcy

46

Preferred shares

Fixed dividend, normally higher than common shares
No voting privileges
Higher claim on assets and income for bankruptcy

47

P/E ratio

Current stock price/EPS

48

EPS

Net income / average number of outstanding shares

49

Avg number of outstanding shares

(Fiscal beginning shares + fiscal end shares) / 2

50

Market capitalization formula

Number of outstanding shares * current stock price

51

S&P TSX Composite Index

Large companies for TSX

52

S&P TSX venture composite index

Small emerging companies

53

NASDAQ

Technology and growth companies

54

Dow Jones

30 blue chips

55

P/E ratio

Investors are willing to pay $x for every $1 the company makes

56

Why do new companies have a higher PE ratio?

Investors pay high because they are forecasting growth in EPS and large capital growth in the long term

57

Why do blue chips have lower PE ratio

Have already grown and can't sustain high growth rates
Less hype
Investors may think it's overpriced compared to industry avg

58

The beta coefficient measures

Responsiveness of w security's stock to movements in the overall market as measured by the index
Calculated using historical data
Tells investors about volatility of the investment

59

Beta formula

% change in stock price / % change in market index