2. What?
Shares that represent part ownership of a
business enterprise
Today the capitalisation of the world’s stock
markets exceeds $36 trillion.
Why?
As a source of funding
3. A firm typically raises capital in several
different ways. Firms carefully manage the
relationship between their borrowing and their
equity
Gearing enables the firm to earn a greater
amount of profit for each share of equity
4. Common stock or ordinary shares
Preferred Stock
Convertible preferred stock
Warrants
6. Theoretically, the value of a share of stock should be precisely
equal to the net present value of the proportion of the company’s
future profits represented by the share.
Earnings
Cash flow
Dividends
Asset Value
Analysts recommendations
Inclusions in an index
Interest rates
Bond Returns
General economic news
Fads
Stock splits
Market efficiency
7. PE ratio
Beta
Return on Equity
Return on capital
Value added
9. There are a number of ways to trade equities,
here they are:
Stock market
OTC
Editor's Notes
A stock market or equity market is a market for the trading of company stock (shares) and derivatives at an agreed price Dutch East India Company may have been the first share-holder owned business Not the only way to raise capital You can have loans although this is very expensive, and it depends whether the bank passes it through, the bank needs to analyse your business model and financial condition of small firms. Can lend only a small amount. Firms finance the interest by selling bonds and securities. Equity Financing is the Financing through the sale of stock in a company is known as equity financing. Venture Capital
No ideal ratio Ratio <0.5 means that the firm has borrowed little and thus not taking full advantage of it’s shareholders capital. This means that it is underleveraged Gearing looks good when there is a tax advantage of rate of interest is low High ratio = overleveraged and highly geared.
An owner of common stock is part owner of the enterprise and is entitled to vote on certain important matters, including the selection of directors. Benefit from business prospects have a claim on the firm’s income and assets only after all creditors and all preferred stock holders receive payment stock of one class may be entitled to greater voting rights, or to larger dividends, than stock of another class bonds, preferred stock offers specified payments on specified dates. Dividend remains constant for as long as the stock is outstanding. Investors like it due to offering tax advantages converted into common stock under certain conditions, usually at a predetermined price or within a predetermined time period Warrants offer the holder the opportunity to purchase a firm’s common stock during a specified time period in future, at a predetermined price, known as the exercise price or strike price.
Flotation, also known as an initial public offering (IPO), is the process by which a firm sells its shares to the public. A great example is Facebook. This occurs for a number for reasons for funding, venture capitalists flotation need not involve all or even the majority of the firm’s shares Rather than selling its shares to the public, a firm may raise equity through a private offering A secondary offering occurs when a firm whose shares are already traded publicly sells additional shares to the public – called a follow-on offering in the UK – or when one or more investors holding a large proportion of a firm’s shares offers those shares for sale to the public.
In other words, estimate how much profit the company is likely to earn each year in the future, use an appropriate discount to determine how much each future year’s earnings are worth today then divide the sum of all future years’ discounted earnings by the number of common shares outstanding The difference between the income received in a given year and cash outlays is called the cash flow Having a high dividend will attract investors thus will push the share price up There are quite a few factors that affect the share price as you can see, if I go through these then I will unfortunately be here the whole day
The price/earnings ratio may be the best-known number used to assess equities. This ratio, also known as the multiple, is obtained by dividing the current share price by reported earnings per share. It offers an easy way to identify firms whose shares seem underpriced or overpriced relative to the market
The vast majority of publicly available equities are seldom bought or sold and are of no interest to institutional investors. Such shares are usually traded over the counter (OTC). OTC trading requires a brokerage firm to match a prospective buyer and a prospective seller at a price acceptable to both. Alternatively, the brokerage firm may purchase shares for its own account or sell shares that it has been holding. Stock Markets have several advantages over OTC They bring many investors together, offering greater liquidity and thus making it possible to obtain better prices Information
