PRESENTATION OF CONTENT

STOCKS

 The Concepts of Stocks

 A stock is a form of security that indicates the holder has proportionate ownership in the
issuing corporation.
 Stocks are bought and sold predominantly on stock exchanges, though there can be private
sales as well, and they are the foundation of nearly every portfolio.
 Corporations issue (sell) stock to raise funds to operate their businesses. The holder of stock
(a shareholder) has now bought a piece of the corporation and, depending on the type of
shares held, may have a claim to a part of its assets and earnings. In other words, a
shareholder is now an owner of the issuing company. Ownership is determined by the
number of shares a person owns relative to the number of outstanding shares.
 Corporations issue (sell) stock to raise funds to operate their businesses.

 Two Types of Stocks

1. Common Stock - usually entitles the owner to vote at shareholders' meetings and to receive
any dividends paid out by the corporation.
2. Preferred Stock - is a security that requires payment of fixed periodic dividends before any
dividends may be paid to the common stockholders. Preferred stockholders generally do not
have voting rights, though they have a higher claim on assets and earnings than the common
stockholders.
 Pays constant dividend as long as the stock is outstanding.
 Typically has infinite maturity, but some are convertible into common stock at some
pre-determined ratio.
 Have “preferred status” over common stockholders in the case of dividend payments
and liquidation payouts.
 Dividends can be cumulative or non-cumulative

 Characteristics of Common Stock

1. Major financing vehicle for corporations
2. Provides holders with an opportunity to share in the future cash flows of the issuer.
3. Holders have ownership in the company.
 Share in the residual profits of the company.
In case of liquidation…
Shareholders have a claim on the residual assets and cash flow of the company.
Known as “residual” rights.
 Claim to all its assets and cash flow once the creditors, employees, suppliers, and taxes are
paid off.
 Voting rights
 participate in the management of the company
 elect the board of directors which selects the management team that runs the
company’s day-to-day operations
 Vote (Voice in Management)
Standard voting rights: Typically, one vote per share provided to shareholders to vote in
board elections and other key changes to the charter and bylaws.
Can be altered by issuing several classes of stock.
– Non-voting stock, which is usually for a temporary period of time,
– Super voting rights, which provide the holders with multiple votes per share, increasing
their influence and control over the company.
Stockholders can appear at the annual meeting and vote in person, but typically they transfer
their right to vote to a second party by means of a proxy.

Proxy – a document giving one person the authority to act for another, typically the power to
vote shares of common stock.
Proxy Fight – an attempt by a person or group to gain control of a firm by getting its
stockholders to grant that person or group the authority to vote their shares to replace the
current management.
Takeover – An action whereby a person or group succeeds in ousting a firm’s management
and taking control of the company.
4. Unlike bonds, no maturity date and variable periodic income.
 Considered to be permanent financing
 Infinite life, i.e. no maturity date
 No promised date when investment is returned.

 Common Shareholders’ Main Rights

1. Voting Power on Major Issues. Voting power includes electing directors and proposals for
fundamental changes affecting the company such as mergers or liquidation. Voting takes
place at the company’s annual meeting. If the shareholder cannot attend, they can do so by
proxy and mail in their vote.
2. Ownership in a Portion of the Company. When business thrives, common shareholders own
a piece of something that has value. Common shareholders have a claim on a portion of the
assets owned by the company. As these assets generate profits and as the profits are
reinvested in additional assets, shareholders see a return as the value of their shares
increases as stock prices rise.
3. The Right to Transfer Ownership. The right to transfer ownership means shareholders are
allowed to trade their stock on an exchange. The right to transfer ownership might seem
mundane, but the liquidity provided by stock exchanges is important.
4. An Entitlement to Dividends. Along with a claim on assets, investors also receive a claim to
any profits the company pays out in the form of a dividend. Management of a company
essentially has two options with profits: they can be reinvested back into the firm (thus, one
hopes, increasing the company’s overall value) or paid out in the form of a dividend.
5. Opportunity to Inspect Corporate Books and Records. Shareholders have the right to
examine basic documents such as company bylaws and minutes of board meetings. In
addition, the Securities and Exchange Act of 1934 requires public companies to periodically
disclose financials.
6. The Right to Sue for Wrongful Acts. Suing a company typically takes the form of a
shareholder class-action lawsuit. For example, Worldcom faced a firestorm of shareholder
class-action suits in 2002 when it was discovered that the company had grossly overstated
earnings giving shareholders and investors an erroneous view of its financial health.
RIGHTS VERSUS WARRANTS
Rights
 Stock rights give their owner the right, but not the obligation, to buy the shares of a
company at a specific exercise price for a designated period of time.
o Preemptive Right - is a provision in the corporate charter or bylaws that gives common
stockholders the right to purchase on a pro rata basis new issues of common stock (or
convertible securities).
o The purpose of the preemptive right is twofold:
1. It prevents the management of a corporation from issuing a large number of additional
shares and purchasing those shares itself. Management could use this tactic to seize
control of the corporation and frustrate the will of the current stockholders.
2. It protects stockholders from a dilution of value. Selling common stock at a price below
the market value would dilute a firm’s price and transfer wealth from its present
stockholders to those who were allowed to purchase the new shares. The preemptive
right prevents this.
 Rights have intrinsic value, which means they have immediate value. For each right that a
stockholder has, they can purchase 1 new share from the company for $40, which is $10
cheaper than its current market value of $50. This is another way of saying the right is issued
with $10 of intrinsic value. The company automatically provides this value because they’re
saving money by avoiding the services of an underwriter.

Warrants
 They are very similar to rights as they provide the right to purchase shares from a publicly
traded company at a fixed price.
 They have time value, meaning the length of time they exist gives them value.
 They are usually issued as a “sweetener” during the sale of another security. For example, a
company that’s having trouble marketing a new bond can make the offering more attractive by
attaching a warrant to the bond.
 The issuance of warrants is a dilutive action. If a publicly traded company issues warrants,
they’re giving out new shares, but not to everyone. Therefore, the issuance of warrants requires
stockholder approval.

Key Points

Rights Warrants
 Right to purchase new shares at fixed  Right to purchase new shares at fixed
price price
 Provided to current stockholders during  Issued as a sweetener with other
additional offerings securities
 One right for every share owned  No intrinsic value
 Intrinsic value exists  Time value exists
 Little time value  Long term (typically 5 years or longer)
 Short term (typically 90 days or less)  Possible outcomes:
 Possible outcomes: o Exercise
o Exercise o Trade
o Trade o Expire
o Expire
MARKET CAPITALIZATION

 Definition of Market Capitalization, or "market cap"

 It is the aggregate market value of a company represented in dollar amount.
 It is the total dollar value of all outstanding shares of a company at the current market
price.
 It is computed based on the current market price (CMP) of its shares and the total number
of outstanding shares, or the company's "float". Market cap is also used to compare and
categorize the size of companies among investors and analysts since it represents the
“market” value of a company.

 Importance of Market Capitalization

 “Size Does Matter” and it does apply to the world of investing. An understanding of the
market cap concept is important for not only the individual stock investor but
also investors of various funds. The market cap can help the investor to know where they
are putting their hard-earned money.
 Understanding things like market cap are important pieces to investing, but one of the first
real steps is creating a brokerage investment account. Choosing a broker can be slightly
intimidating with their range in prices and variety of features.

 Types of Market Capitalization

 Blue Chip Companies are often large-cap or mega-cap stocks. They are considered to be
relatively stable and secure. However, there is no guarantee of these companies
maintaining their stable valuations as all businesses are subject to market risks. The very
smallest are referred to Micro-caps.
 Following are the commonly used standards for each capitalization:
1. Mega-cap
– This category includes companies that have a market cap of $200 billion or higher.
– They are the largest publicly traded companies by market value, and typically
represent the leaders of a particular industry sector or market.
– For example, as of Sept. 28, 2020, technology leader Apple Inc. (AAPL) has a market
cap of $1.966 trillion, while the online retail giant Amazon.com Inc. (AMZN) stood
next with $1.59 trillion.
2. Large-cap
– Companies in this category have a market cap between $10 billion to $200 billion.
– International Business Machines Corp. (IBM) has a market cap of $108.41 billion and
General Electric Co. (GE) has a figure of $54.27 billion.
3. Mid-cap
– Ranging from $2 billion to $10 billion worth of market cap, this group of companies
is considered to be more volatile than the large-cap and mega-cap companies.
– Growth stocks represent a significant portion of the mid-caps. Some of the
companies might not be industry leaders, but they may be on their way to becoming
one.
– Juniper Networks Inc. (JNPR), with a market cap of $7.29 billion, is one.
4. Small-cap
– Small-cap companies have a market cap between $300 million to $2 billion.
– While the bulk of this category is comprised of relatively young companies that may
have promising growth potential, a few established old businesses which may have
lost value in recent times for a variety of reasons also figure in the list.
– One example is Bed Bath & Beyond Inc. (BBBY) which has a market cap of 1.87
billion.
– Track records of such companies aren’t as long as those of the mid- to mega-caps,
they present the possibility of greater capital appreciation at the cost of greater risk.
 5. Micro-cap
– Mainly consisting of penny stocks, this category denotes companies with market
capitalizations between $50 million to $300 million.
– For instance, a lesser-known pharma company with no marketable product and
working on developing a drug for an incurable disease, or a 5-people small company
working on artificial intelligence (AI)-powered robotics technology may be listed with
small valuation and limited trading activity.
– While the upward potential of such companies is high if they succeed in hitting the
bull’s eye, the downside potential is equally worse if they completely fail.
Investments in such companies may not be for the faint-hearted as they do not offer
the safest investment, and a great deal of research should be done before entering
into such a position.
6. Nano-cap
– Adding another high-risk, high-reward layer beyond the micro-caps, the companies
having market caps below $50 million are classified as nano-caps.
– These companies are considered to be the riskiest lot, and the potential for gain
varies widely.
– These stocks typically trade on the pink sheets or OTCBB.

You may visit the link (https://www.value.today/headquarters/philippines) to determine the

Philippines Top Companies List by Market Cap as on Jan 1st, 2020.