FIN222 Lecture Notes - Lecture 4: Capital Gain, Dividend Yield, Share Repurchase
LECTURE 4.
SHARE
VALUATION
Share basics
Overall
Ownership of a company is divided into shareholdings.
Shares are traded in the stock market that provides liquidity for a
company’s shares and determines market price for those shares.
Ordinary shares
Share rights:
• Right to share proportionally in dividends
• Right to share proportionally in assets remaining after liabilities
have been paid in a liquidation
• Right to vote on directors and other proposals
Preference
shares
Cumulative vs. Non-cumulative:
• Cumulative: all previously missed pref. dividends must be paid
before any ordinary shares.
• Non-cumulative: missed dividends do not accumulate
Pref. shares are hybrid: both debt and equity
Equity-like:
• dividends paid (declared by board of directors
• dividends can be skipped (for non-cumulative ones)
• can be perpetual
Debt-like:
• fixed dividends regardless of firm’s earning
• paid before ordinary shareholders (and behind bondholders)
• typically no voting rights
• can have fixed maturity
The same priority is applied when
bankruptcy, bondholders – pref.
shareholders – ord. shareholders
Document Summary
Ownership of a company is divided into shareholdings. Shares are traded in the stock market that provides liquidity for a company"s shares and determines market price for those shares. Ordinary shares share rights: right to share proportionally in dividends, right to share proportionally in assets remaining after liabilities have been paid in a liquidation, right to vote on directors and other proposals. Cumulative vs. non-cumulative: cumulative: all previously missed pref. dividends must be paid before any ordinary shares, non-cumulative: missed dividends do not accumulate. Pref. shares are hybrid: both debt and equity. Equity-like: dividends paid (declared by board of directors, dividends can be skipped (for non-cumulative ones, can be perpetual. Debt-like: paid before ordinary shareholders (and behind bondholders) typically no voting rights, can have fixed maturity fixed dividends regardless of firm"s earning. The same priority is applied when bankruptcy, bondholders pref. shareholders ord. shareholders.
