For the Investor Continued

DIVIDEND YIELD

  1. The relationship between the dividends paid to common shareholders and the price of the shares.
  1. What percentage of the price of the stock are you getting in dividends?
  1. Math = Dividends per common/ Market price of Common
  1. Important in industries where stocks trade on dividends like utilities. Unimportant in growth companies where owners want to see retained earnings to promote further growth.

Story about Harvard professor’s explanation of Efficient Markets Hypothesis - this week. Hurricanes don’t happen in L.A. or Mexico City and most stock trade on earnings. Umm

BOOK VALUE PER SHARE

  1. Always in text books but not as important in real life because of valuation methods of assets vary with accounting practices and do not always reflect the liquidation value of a company.
  1. If a company goes bankrupt (has to be liquidated) the order of payments is General creditors, bondholders, preferred shareholders and then common.
  1. Since preferred shareholders in liquidation are paid with book value and common with what is left we exclude preferred equity.
  1. Math = Total Stockholder’s Equity – Preferred Equity / Number of common shares.
  1. Would you buy a common share above book value? Most do.

STOCK OPTIONS

  1. Compensating Employees with the OPTION to buy company shares at a stated price is a common form of compensation. Why? - Explain ESOPs
  1. If you consider that stock options would be “exercised” at below market prices, what effect does it have on the company and the owners – common shareholders?
  1. While the company has a cash infusion, albeit below market, the current shareholders equity is diluted.
  1. In most companies the effect of the ESOP is immaterial but in start-ups and high growth companies it can be material.
  1. SEAS programs quicken an employees’ ability to exercise their options to an almost day-trading levels.
  1. The question in evaluating such programs is “are they material”?

STOCK APPRECIATION RIGHTS

  1. As in stock options the goal is motivate the employee to make the company more profitable.
  1. Usually just given to senior management
  1. Example: If I gave appreciation right on 100 shares at the stock rises from 10 to 15, you would get compensated (in cash or stock) for the appreciation 5 times the number of shares (100) or $500.
  1. This compensation becomes a wage expense to the company so it can concern the shareholders IF it is material. The shareholders (owners) just might want that money themselves or have it stay as retained earning for future growth OR they may want to reward the management team in hope it encourages them to do it again.

INTROCTION TO STATEMENT OF CASH FLOWS

Read Quote The Banker page 286.

Project Date announcement

Review of Mid-Term Grades

Settlement of Project Teams

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