Class 11_22 & 11_23 - Ch 11

Class 11_22 & 11_23 - Ch 11 - Agenda Questions? Quiz...

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Page 1 Questions? Quiz – Chapter 10 Equity – Chapter 11 Agenda
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Page 2 Common Stock Ownership 1 of 2 ways (bonds are the other) to raise a large amount of money (more than can be borrowed from a bank). Pros (for stockholders): Voice in management Right to dividends Shares of stock can be purchased in small amounts Stock can be easily transferred Stock ownership provides investors with limited liability Residual claim upon liquidation Pros (for the company): Not required to be paid back (no risk of bankruptcy) Cons (for the company): Dilutes control of the company (this might not be a con) Dividends are not tax deductible Chapter 11
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Page 3 Stockholders’ Equity There are two primary sources of stockholders’ equity: 1. Contributed Capital – from the sale of stock. This is the amount of money stockholders invested through the purchase of shares. Examples are Common Stock and Additional Paid in Capital (APIC). 2. Retained Earnings – generated by the company’s profit-making activities. This is the cumulative amount of net income the corporation has earned since its organization less the cumulative amount of dividends paid since organization. Authorized Shares – the maximum number of shares that can be issued per the articles of incorporation (aka corporate charter) Terminology Issued Shares – the number of shares that have actually been issued to the public. Treasury Stock – stock bought back by the company. It is a contra-equity account. Outstanding Shares – equals issued shares minus treasury stock. It is the number of shares owned by stockholders. Chapter 11
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Page 4 Chapter 11 Earnings Per Share (EPS) Net Income divided by Average Number of Common Shares Outstanding Where do you find the EPS? Last number on the Income Statement. Two types of stock Common Stock – the basic voting stock issued by a corporation. Individuals who hold common stock are the “owners” of the corporation. Common stock gives you the right to vote and share in the profitability of the business through dividends. Preferred Stock
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This note was uploaded on 12/17/2010 for the course ACC 311 taught by Professor Charrier during the Fall '08 term at University of Texas.

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Class 11_22 & 11_23 - Ch 11 - Agenda Questions? Quiz...

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