Nauman J.
Amin Handout 04
Stock/ Equity
Issues: Common Vs Preferred Stock
Preferred stock: Related Concepts
• Stated or par value of preferred stock: Preferred
shares have a stated liquidating value.
• Cumulative and Noncumulative Dividends:
Dividends payable on preferred stock are either
cumulative or noncumulative; most are
cumulative.
– If preferred dividends are cumulative and are not paid
in a particular year, they will be carried forward as an
arrearage.
– Unpaid preferred dividends are not debts of the firm.
Debt Ratio
• Book
• Debt Ratio: Total Liabilities/ Total Asset
• Additional
• Debt/Equity Ratio: Total liabilities/
Shareholders Equity
– Sometimes only interest-bearing, long-term debt
is used instead of total liabilities in the calculation.
10/11/2010
Types of Equity in Corporation
• Common Stock: Equity without priority for dividends or
in bankruptcy but usually with voting rights.
• Preferred Stock
• Difference:
– Preferred stock differs from common stock because it has
preference over common stock in the payment of
dividends
– and in the distribution of corporation assets in the event of
liquidation.
– Preferred Stock MAY not have voting rights & have fixed
dividend payout…they may be likened to a bond.
Authorized Vs Outstanding
• Authorized Shares are the maximum number
of shares that a company can issue.
– specified in the company's articles of association
• Shares outstanding are common shares that have been
authorized, issued, and purchased by investors.
– Stock currently held by investors, including restricted shares
owned by the company's officers and insiders, as well as those
held.
– Used in ratio calculation of EPS, BV
• Paid in Capital: premium paid by investors over and above
the par value of the shares.
– This amount cannot be distributed among the existing
stockholders by law, therefore deemed as part of total equity