Finance Saham

8/2/2019 Finance Saham

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SahamCh. 7 sec. 7.1 and 7.2

Gitman Principle of Managerial Finance


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Equity Capital

Equity capital consists of long

term funds provided by the firmsowner, the stockholders

Unlike creditors (lenders),

holders of equity capital are

owners of the firms Stockholder has a voice in

management

Capital: The long

terms of funds, all

items in on the right

side of BS is capital

(excluding CL)


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Claims on Income andAsset

The claims of holders of equity is

secondary to the claim ofcreditors

Because equity holders are the

last to receive any distribution of

assets, they expect greater returnsfrom dividends and /or increases

in stock price


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Maturity and TaxTreatment

Unlike debt, equity capital doesnot Mature so repayment is notrequired

Permanent form of financing

The price that can be realizedmay fluctuate

Thus, makes the overall returns

for stockholders more risky Interest payment: Tax-deductible;

Dividend payment: not tax-deductible.


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Common and PreferedStock


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Common Stock

The true owner of

business firm

Residual owners;receive what is left.

Expect to

compensated with

adequate dividends

and capital gains


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Common Stock (Cont)

Ownership Privately owned

Closely owned Publicly owned

Par Value: Relatively uselessvalue.

Preemptive Rights: allow

common stockholders tomaintain proportionateownership

Dilution of ownership


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Common Stock (Cont)

Authorized Shares

Outstanding Shares

Treasury Stock

Issued Shares


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Example

Golden Enterprise

Common Stock-$0.8

par value; authorized

35,000,000 shares;

issued 15,000,000shares.

Stockholders

Equity

Issued 15m

shares

$12m

Paid in capital in

excess of par

$63m

Retained Earning $31M

$106m

Less: Cost of

treasury shares

(1m shares)

$4m

Total

stockholders

equity

$102m


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Voting Rights

Each share of common stock entitles its holder to onevote in the election of directors or special issue

Supervoting shares

Nonvoting common stock

Proxy Statement Proxy Battle


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Dividends

Most corporation

pay dividendsquarterly

Dividends may be

paid in cash, stock,

or merchandise

Historical dividend

pattern


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Preferred Stock

Preferred

stockholderspromised a fixed

periodic dividend

As percentage or as

dollar amount

Par value preferredstock

No-par value

preferred stock


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Feature of PreferredStock

Restrictive Covenants

Focus on ensuring the firmscontinued existence and regulerdividends

Cumulation

Cumulative dividend paid beforedividends paid to commonstockholders

Callable Retire outstanding stock at certain

period and specific price

Conversion Feature


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Basic Rights ofStockholders

Preferred

Fixed income

Not normally given

voting rights

Preference in the

liquidation of asset Moderate risk taker

Common

Fluctuated

Voting rights

Behind preferred

stockholder and creditors

True risk taker


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Issuing Common Stock


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Venture Capital

Privately Raisedexternal equity capital

used to fund early-stage firms withattractive growthprospects

Venture Capitalist Angel Capitalist

(Angels)


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Going Public

Sell stock in primary market:

Public Offering (IPO)

Rights Offering

Private Placement

Prospectus

Investment bankers and company executive promote the

stock by doing roadshow


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Prospectus

A formal legal document, which is required by and filed with the Securities andExchange Commission, that provides details about an investment offering for saleto the public.

A prospectus should contain the facts that an investor needs to make an informedinvestment decision.

Also known as an "offer document".

There are two types of prospectuses for stocks and bonds: preliminary and final.

The preliminary prospectus is the first offering document provided by a securitiesissuer and includes most of the details of the business and transaction in question.

Some lettering on the front cover is printed in red, which results in the use of thenickname "red herring" for this document.

A passage in red states the company is not attempting to sell its shares before theregistration is approved by the SEC.

There is no price or issue size stated in the red herring.


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Prospectus (Cont.)

The Red Herring is sometimes updated several times beforebeing called the final prospectus.

The final prospectus is printed after the deal has been made

effective and can be offered for sale, and supersedes thepreliminary prospectus.

It contains such details as the exact number ofshares/certificates issued and the precise offering price.

In the case of mutual funds, which, apart from their initialshare offering, continuously offer shares for sale to the public,the prospectus used is a final prospectus.

A fund prospectus contains details on its objectives,investment strategies, risks, performance, distribution policy,fees and expenses, and fund management.


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Thank You

Finance Saham

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