FIN 620-session 3 lecture

FIN 620-session 3 lecture - FIN 620 Long-Term Financial...

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FIN 620 Long-Term Financial Management Session 3  1. Lecture Notes/Comments From Chapter 15, some definitions to start things off: Par and No-Par Stock - The stated value of a share of common stock is referred to as par value ; however, all common stock does not have a par value. In practice, these stated values are typically very low amounts, often pennies or fraction of a penny after stock splits. Authorized versus Issued Common Stock - The articles of incorporation state the number of shares the firm is authorized to sell, which can only be changed by a vote of shareholders. The firm may, however, only issue a fraction of the authorized amount. Capital Surplus - When a firm sells shares, it typically does so at a price greater than the stated (par) value. The difference is referred to as capital surplus. Retained Earnings - Most firms do not pay out all earnings as dividends. The portion that is reinvested in the business is retained earnings. The sum of par value, capital surplus, and accumulated retained earnings is the firm’s book value. The Market Value of a firm is possibly the most important number for stock analysts. It equals the price per share multiplied by the number of shares outstanding. It is the value of all shares of the firm. The Book Value on the other hand is the value of all shares according to the balance sheet. The Market Value is a more meaningful measure, as it accounts for future profits which book value does not. For example, the market value of Google is $200B+ whereas its book value is less than $50B. Shareholders’ Rights -
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FIN 620-session 3 lecture - FIN 620 Long-Term Financial...

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