Common Stock Common Equity : The sum of the firms Common Stocks, paid in capital ,and retained earnings,

which equals the common stockholders total investment in the firm stated at book value. Par Value : The Nominal or face value of Stock or Bond Retained Earnings

# Common Stock is a certificate representing partial ownership in a corporation. Common Stock may be issued by corporation To obtain long term funds Issuing authority is not obligated to repurchase Shareholder may sell it to secondary market Purchaserindividual--- financial institution Primary Stock Market enables corporations to issue new stock to investors (New Financing) Secondary Stock Market enables investors to sell stocks that they had previously purchased (Liquidity for investors)

Legal Rights & Privileges of Common Stockholders Ownership & Voting Rights Election of the Board of Directors Authorization to issue new shares of C.S. Amendment to the corporate charter Adoption of by laws Rights on profits : Dividend 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 of people to gain control of a firm by getting its stockholders to grant that person or group the authority to vote their shares in order to elect a new management team. Takeover : An action whereby a person or group succeeds in ousting a firms management and taking control of the company. Preemptive Rights : Existing shareholder priority should be given to the existing shareholder to purchase the new issues.

Evaluation of Common Stock as a Source of Funds From the Corporation point of View
Advantages 1.C.S . dose not legally obligate the firm to make payments to stock holders. 2. C.S. carries no fixed maturity date. 3. Sale of C.S. increase the credit worthiness of the firm. 4. If companys prospect look bright , then common stock generally can be sold on better terms than debt. (i) Higher expected return (Dividend plus Capital Gain) (ii) Representation of ownership (iii) Better hedge against inflation

Disadvantages 1. Sale of new stock gives some voting rights, and perhaps Control to new stockholders. 2.Cost of underwriting & distributing Common stock Usually are higher than those for debt or preferred stock. Flotation costs for common stock are higher because : (a) Costs of investigation (b) Stocks are riskier than debt 3. If equity is more than optimal capital structure, the average cost of capital will be higher than necessary. 4. As per the tax law , common stock dividends are not deductible for tax purpose but bond interest is tax deductible.

Evaluation from social point of view: From Social viewpoint , CS Is desirable from financing because it makes business less vulnerable Too many firms too many debt - risk more business fluctuation #The market for common stock Closely held corporation : A corporation that is owned by a few individuals who are typically associated with the firms management.

Publicly owned corporation : A corporation that is owned by a relatively large individuals who are not actively associated with the firms management.

Over the-Counter Market: The network of dealers that provides for trading securities not listed on organized exchanges. Organized Security Exchange : OSEs are used to execute secondary market transactions. A formal organization, having a tangible physical location, that facilities trading in designated (listed ) securities . Secondary Market : The market in which used stocks are traded after they have been issued by corporations. Primary market : The market in which firms issue new securities to raise corporate capital.

PRIMARY VS. SECONDARY MARKET

1.NEW SECURITIES ARE TRADED 1. ALREADY EXISTING SECURITIES ARE TRADED 2.PROVIDES FUND TO INITIAL 2. DOES NOT PROVIDES FUND TO INITIAL ISSUER 3. S. MAY SOLD AT PAR/DISCOUNT/ 3. CAPITALGAIN OR PREMIUM LOSS. 4. SECURITIES MAY DIRIECTLY 4. INVESTORS MAY OFFER TO THE INVESTOR PURCHASE /SOLD

#Types of stock market Transactions 1. Trading in the outstanding shares of established, publicly owned Companies: the secondary market. 2. Additional shares sold by established, publicly owned companies: the primary market. 3.New public offerings by privately held firms : the primary market.

Going public : The act of selling stock to the public at large by a closely held corporation or its principal stockholders. Growth No longer be financed with debt Increase ownership base & funding sources Red Tape increase Financial Reporting and disclosure guidelines Security Regulation

#The Decision to List the Stock

- Apply to Exchange - Minimum Fees - Meet the Exchange Minimum requirement (no. of shares, amount , net income , number of share outstanding and in the hands of the outsiders etc) - Must disclose certain information to the Exchange - Prevent manipulation of stock price

Listing is beneficial both to the company and to its stockholders.

- Free advice and publicity - Prestige and Reputation - Increased information, increased liquidity and confidence - Beneficial effect on the sales of the product - Lowering the required rate of return - Lowering the cost of capital - Increase the value of the firm

# REGULATION OF SECURITIES MARKETS # Securities & Exchange Commission (SEC):Bangladesh Govt. agencies SEC regulates the issuance and trading of stocks and bonds
# Registration Statements: A statement of facts field with the SEC about a company that plans to issue securities. # Prospectus : A document describing a new security issue and the issuing company

# Insiders : Officers ,directors, major stockholders, or others who might have inside, or privileged, information on a companys operations.

THE INVESTMENT BANKING PROCESS Investment Banker : An organization that underwrites & distributes new issues of securities; helps businesses & other entities obtaining needed financing. Help corporations to design securities with the feature that are most attractive to investors given existing market conditions Buy these securities from the corporations Than resell them to investors

Raising Capital : Stage I Decisions The firm itself makes some preliminary decisions on its own, including the following: 1. Dollars to be raised : How much capital we need? 2. Type of securities used 3. Competitive bid versus negotiated deals 4. Selection of an Investment Banker

Raising Capital : Stage II Decisions Stage II decisions, which are made jointly by the firm & its selected Investment Banker, include the following: 1. Reevaluating the initial decisions : The firm & its investment banker will reevaluate the initial decisions about the size & type of securities to use 2. Best efforts or underwritten issues In a best efforts arrangement, the investment banker does not guarantee that the securities will be sold or that the company will get the cash it needs. With these types of arrangement , the investment banker does not buy the securities from the issuing firm. Investment banker is paid a commission based on the amount of the issue that is sold.

 In an underwritten arrangement , the investment banker generally assures the company that the entire issue will be sold ,so the investment banker bears significant risks in such an offering . With these types of arrangement , the investment banker firm typically buy the securities from the issuing firm and then sells the securities in the primary market , hoping to make a profit.

3. Issuance Cost : The Investment Banker costs must be negotiated, & the firm also must estimate the other expenses it will incur in connection with the issue lawyers fees, accountants costs printing cost & so on .

Underwriters Spread :The difference between the price at which the investment banking firm buys an issue from a company & the price at which the securities are sold in the primary market ; it represent the investment bankers gross profit on the issue.

1.Setting the Offering Price : The price at which Common Stock is sold to public.

Underwriting Syndicate : A syndicate of investment firms formed to spread the risk associated with the purchase & distribution of a new issue of securities.

Lead or Managing Underwriter : The member of an underwriting that actually manages the distribution and sale of a new security offerings.