Stock ValuationCapital Market InstrumentsDebt versus EquityCharacteristics of Common StockCommon StockVoting Rights of Common StockholdersPros & Cons of Equity FinancingTechnical IssuesRaising Equity CapitalIssuing Common StockRights and WarrantsSlide 12Stock ValuationPrepared by Keldon BauerFIL 240Capital Market Instruments•The capital market is the market for financial instruments that mature in more than a year.•There are two forms of capital:•Debt: The right to an agreed cash flow.•Bonds, notes, etc.•Equity: The ownership interest in the business (therefore the residual cash flow).•Common and preferred stock.Debt versus Equity•Voice in Management:•Voice of lenders limited by contract.•Equity investors have voting rights for the board of directors.•Claims on Income and Assets:•Debt – Contractual claimant.•Equity – Residual claimant.•Maturity •Tax TreatmentCharacteristics of Common Stock•Right to residual income•Valuation implications•Classes of stock•Voting rights•Target stockCommon Stock•Ownership•Private corporation•Closely held corporation•Publicly traded corporation•Board of directors•Fiduciary responsibility•Non-profit corporation•Board of directors/trustees•Institutional Ownership of Common Stock•Shareholder activismVoting Rights of Common Stockholders•Proxies•Charter changes•Board of directors•Proxy battle•Board of Director Elections•Majority voting•Cumulative votingPros & Cons of Equity Financing•Pros•Lower financial risk•No legal obligation to repay•No bankruptcy risk associated with equity•Cons•Dilution of earnings and control•More expensive (including floatation)•SignalingTechnical Issues•Par Value•Authorized shares.•Outstanding shares.•Treasury shares.•Issued shares.Raising Equity Capital•Investment Bankers (Publicly Held)•Venture Capitalist (Privately or Closely Held)•Organization.•Investment stages.•Deal Structure/Pricing.•Angel Capitalist (Privately or Closely Held)Issuing Common Stock•Initial public offering (IPO)•Investment banker•Prospectus•Syndicate•Underwriting versus Best Efforts•Pricing new issuesRights and Warrants•Preemptive rights•Subscription price•Rights-on period•Ex-rights•WarrantsCommon Stock•Dividends•International Stocks•Listing on foreign exchanges.•American Depository Receipts
View Full Document
Unlocking...