Methods of capitalization:

A company raises money from investors in two ways:

1. Issue stock (equity securities):

An investor in stock is considered an owner of a company.

Stock holders have Limited Liability .

When a company issues stock it does not owe money to investors .

2. Issue bonds. (debt securities).

An investor in bonds is considered a creditor of a company.

Bond holders loan a company money.

When a company issues bonds it owes money to investors.

The Corporation.

Articles of Incorporation (also known as the Corporate Charter) are filed with the Secretary of State in the home state of the issuer according to the laws of that state. It contains:

Name, purpose and nature of the business.

Names and addresses of the original directors.

Duties of the corporate officers .

Number of shares being offered (”authorized shares”).

SEC (Securities and Exchange Commission):

Agency of the federal government that regulates the securities industry. If a company wants to issue shares, it must register a Corporate Charter and a Registration Statement with the SEC ..

Transfer Agent & Registrar:

There are two entities associated with the issuance of corporate securities. They are the Transfer Agent and the Registrar.

Transfer Agent: responsible for recording changes in stock ownership, sends dividends and proxies, and it’s typically a bank.

Registrar: makes sure the corporation doesn’t issue more shares than its charter allows, must always be independent of the corporation.

Stock values:

Par Value: arbitrary value printed on certificate, this value never changes (except for stock splits). It is used for book keeping purposes and does not effect the market value.

Book Value: net worth of the corporation divided by the number of outstanding shares, the actual market value may be above, below, or equal, to the book value.

Market Value: worth of a share as determined by supply and demand, this is the most single important valuation for the investor because it is determined by the market itself and not set forth by the corporation issuing the shares.

Dividends are declared at the discretion of the BOARD OF  DIRECTORS May be in the following forms:

• cash
• property (typically shares of a subsidiary).
• stock dividends (above 25% would typically be a split).
• products of the company .

Important Dates that Pertain to Dividends:

• Declaration Date :

The declaration date is set by the BOARD OF DIRECTORS  the day the dividend is announced .

• Ex-dividend Date:

This dividend is set by the exchanges .

first day that the stock trades without a dividend 2 business days prior to the record date, if the stock is purchased on or after this date, then the new stock owner will not be entitled to the dividend .

• Record Date :

set by the corporation’s Board of directors it is the day that the shareholder must be listed on the transfer agent’s books as an owner, to be eligible to receive the dividend.

if the trade settles on or before the Record Date, the new owner will receive the dividend .

• Pay Date:

set by the corporation’s Board of directors

it’s the day that the dividend will be paid .

Example  number 1 :

On Monday February 12th, the Board of directors for XYZ Corporation declares a dividend to be paid on Friday March 2nd to all stock holders of record as of Friday February 23rd. When is the Ex-dividend date?

Example No. 1

In the above example, February 12th is the Declaration Date; February 23rd is the Record Date and February 21st would be the Ex-dividend date (two business days prior to the Record date). March 2nd is the Pay Date.

Example  number 2 :

On Wednesday June 13th, the Board of directors for HIJ Corp. declares a dividend to be paid on Thursday July 12th to all stock holders of record as of Tuesday June 26th. When is the Ex-dividend date?

Example No.2

In the above example, June 13th is the Declaration Date; June 26th is the Record Date and June 22nd would be the Ex-dividend date (two business days prior to the Record date). July 12th is the Pay Date.

Ex-Dividend Date Price Adjustments:

On the ex-dividend date, the specialist on the New York Stock Exchange and the Market Makers on the NASDAQ are responsible to adjust the price of the stock downward to reflect the dividend.  The idea behind this practice is simple: the dividend is considered a piece of the stock’s market value. If a stock is bought on or after the ex date, then the new buyer should not pay for a dividend he won’t be receiving.

The manner in which stock prices are adjusted on the ex date is very simple. Take the amount of the dividend and then subtract that amount from the prior day’s closing price.

Example  number 1:

A 47 cent dividend was declared on EFG. On Tuesday EFG closed at $37.32.  If the Ex-date is Wednesday, then the 47 cent dividend will be subtracted from Tuesday’s close and on Wednesday morning EFG would open at $36.85 ($37.32- $.47).

Example  number 2 .

A 54 cent dividend was declared on KLM.  On Thursday KLM closed at $66.57  If the ex-date is Friday, then the 54 cent dividend would be subtracted from Thursday’s close and KLM would open at $66.03 on Friday morning ($66.57 – .54) .

Stock Dividends: 

Sometimes a stock dividend will be declared rather than a cash dividend. 

A stock dividend is expressed as a percentage of a share. An example would be a 10% stock dividend.

The end result of a stock dividend is exactly the same as that of a forward stock split.

The only exception is how it is expressed. A 25% stock split is the equivalent of a 125 for 100 (or 5 for 4) forward stock split.

a forward stock split is when a company simply divides the number of shares it has into a greater number.

The important thing to remember regarding stock dividends is that the ownership ratio and portfolio value must always remain the same.

To find the value of a stock dividend do the following:

Put the dividend percentage into fractional terms.

To find the total number of shares after the split multiply by the fraction.

To find the new stock price multiply the old price by the reciprocal of the dividend fraction.

Example  number 1:

If you own 100 shares of TUV at $25 per share, after a 10% stock dividend you would own 10% more shares or 110 shares (100 shares x 10% = 10 new shares plus the original 100 shares). This is the equivalent of a 110 for 100 stock split, or an 11 for 10 stock split. The remaining outstanding shares would be 11/10ths of the old total, so the new price per share would be 10/11ths of the old price.

11/10 x 100 = 110 shares (10 of which are new shares) .

10/11 x $25 =$22.72 is the new price per share .

Notice that the old portfolio value remained at $2,500 even after the dividend.

Example  number 2:

If you own 200 shares of CDE at 64.50 per share, after a 15% stock dividend you would own 15% more shares or 230 shares (200 shares x 15% = 30 new shares plus the original 200 shares). This is the equivalent of a 115 for 100 stock split, or a 23 for 20 stock split. The remaining outstanding shares would be 23/20ths of the old total, so the new price per share would be 20/23rds of the old price.

23/20 x 200 = 230 shares (30 of which are new shares) .

20/23 x $64.50 = 56.09 is the new price per share .

Notice that the portfolio value has remained at $12,900 even after adjusting for the stock dividend.

If a stock dividend results in “fractional shares”, the investor would typically receive cash for the fractional amount. 

REGULAR WAY SETTLEMENT .

On the “settlement date”, the buyer will be listed on the books of the transfer agent as the new owner. The seller would no longer own the stock.

All “regular way” stock transactions settle on the third business day after the trade date (T + 3). Be sure not to include weekends and exchange holidays such as Fourth of July, Christmas, New Year’s Day, Martin Luther King, Good Friday, Thanksgiving, Memorial Day & Labor Day.

Example  number 1:

If Mr. Orange buys 100 EFG on Monday Aug. 8th. When would the transaction settle? 

Example No. 1

Example  number 2 .

If Miss. Tan purchases 1,000 MNO on Thursday March 16th.  When would the transaction settle? Remember DO NOT count the weekends.

Example No.2

Example  number 3 .

If a stock is sold on Wednesday July 3rd, when would the trade settle? Remember: DO NOT count major Holidays on which the New York Stock Exchange is closed (Fourth of July, Christmas, New Year’s Day, Martin Luther King, Good Friday, Thanksgiving, Memorial Day & Labor Day).

Example No.3

CASH SETTLEMENT:

All trades done on a “cash” basis settle on the same day if done before 2:30 PM Eastern Standard Time.

SELLER’S OPTION:

NYSE states that Seller’s Options settlements may take place up to 180 business days after the trade date, but no sooner than 4 business days after the trade date.  Seller can have the settlement occur sooner than previously agreed upon, if he gives the buyer at least one day’s notice.

As mentioned in a prior lesson, all common shareholders are entitled to vote on various issues, including the election of the corporation’s Board of directors. The number of votes a shareholder is entitled to is a function of the number of shares he has and the number of vacancies on the Board of directors (BOARD OF DIRECTORS) which the election is seeking to fill.

Example:

3,000 shares x 5 vacancies = 15,000 votes.

There are two ways in which these votes may be cast:

1. Statutory (Regulatory ) Voting .

Each share represents one vote for each position on the BOARD OF DIRECTORS .

Example:

If 5 board members are to be elected, an investor with 100 shares may cast up to 100 votes for each of the 5 slots (500 total votes).

2. Cumulative Voting .

Each share controls as many votes as there are members of the BOARD OF DIRECTORS. This type of voting is best for SMALLER shareholders .

Example:

If 5 positions are to be filled, then a shareholder with 100 shares will have 500 votes to cast in any manner he wants. He may cast all 500 votes on one position if he wants, or split the 500 votes up anyway he wants.

Being that smaller shareholders can ban together and concentrate their voting power on one position, they can better their chances for representation on the BOARD OF DIRECTORS using the Cumulative voting method. 

Risk Management

Risk Management is the process of identifying, measuring, and treating exposures to potential loss.

Key Terms 

Understanding the key terms is vital to the understanding of risk management.

Risk 

Risk is the uncertainty of financial loss.  The term is used to designate the insured or a peril insured against.  Example:  Because we live, we are at risk of dying.  A pure risk is where there is no possibility of gain, only a loss or no loss.  Insurance is considered a pure risk purchase.  A speculative risk allows possible gains or losses.

Exposure 

Exposure is the possibility of loss.  There are three types of exposures:  property, liability and personal.  This book deals only with personal exposures.

Peril 

Peril is a cause of loss, such as an accident or an illness that causes death or disability.  (Sometimes called a hazard)

Loss 

A risk manager involved in planning the proper type and amount of insurance must consider the probabilities of loss in health, life and employment.

Methods of Handling Risk

Avoidance 

Avoiding a risk altogether, as when parents decide not to purchase an automobile for a college student.  A party could also avoid a risk by signing a hold harmless agreement.

Retention 

Retaining some of the risk as in having a deductible and/or coinsurance

Sharing 

Sharing the risk; Example:  A sole owner of a company takes on an equal partner.

Reduction 

Reducing risk; Example:  A company might have an exercise program for workers and reduce the risk of heart attacks.

Transfer 

Transferring the risk to another party as in the purchase of insurance.  In purchasing life insurance, the risk of economic loss by premature death is transferred to the insurance company.

Below we describe the types of shares issued by a corporation during an IPO (Initial Public Offering). 

Authorized Shares: Shares the corporation is allowed to issue based on the Corporate Charter.

Unissued Shares: Portion of authorized shares not yet sold to the public.

• Shelf registration = shares may be kept on registration for up to 2 years, to be issued at a later date. This allows established companies to issue shares when needed, without having to wait for the registration process.

Issued Shares: Portion of the authorized shares which have been sold to the public.

Treasury Stock : Portion of the issued shares that are repurchased by the company. These shares have no voting rights and are not entitled to dividends.

Reasons why a company buys Treasury Stock: avoid hostile takeover, use for employee stock ownership plans (ESOP), increase demand for the shares which are still publicly traded, and to use as collateral to borrow money .

Outstanding Shares : Portion of the issued shares that are owned currently by the public. This graphic shows the relationship of the various types of shares. 

Issued. Minus. Treasury = Outstanding

Example:

6,000,000 authorized shares.

3,500,000 issued shares.

2,500,000 unissued shares.

1,250,000 shares of treasury stock Outstanding: 3,500,000. (issued). Minus. 1,250,000 . (treasury) = 2,250,000 shares outstanding .

Common shareholders have six basic rights, they are as follows:

 1. Right to vote: Things to vote on:

alterations to Corporate Charter .

mergers and acquisitions.

financial reorganizations .

stock splits. (forward and reverse) .

issuing convertible bonds or preferred stock . (recapitalization) .

issuing stock options to officers on a preferential basis .

board of directors. (statutory vs. cumulative) .

2. Right to receive limited financial information about the company: The information is disseminated in the form of quarterly income statements and balance sheets.

3. Pre-emptive rights: If a corporation is issuing additional shares, then the current shareholders must be afforded the opportunity to purchase the new shares to keep their ownership percentage the same.  They are usually offered the new shares at a discount to the current market price.

4. Right to share in corporate profits: profits are disbursed in the form of a dividend, shareholders do not vote for dividend declarations, and dividends are declared at the discretion of the Board of directors .

5. Right to transfer ownership: All common shareholders have the right to buy and sell their shares. The only exception to this would be in the case of certain insiders who must adhere to specific restrictions as set by the SEC and the Exchanges.

6. Right to liquidation if corporation fails: If a corporation goes out of business, all of the shareholders are entitled to any monies left after a liquidation of the corporation’s assets.  The following is the priority of claims to those assets.  Notice that common shareholders are the last in line:

1^st.  Unpaid taxes.

2^nd.  Unpaid wages.

3^rd. Secured creditors. (mortgage bond holders, and equipment trust certificate holders). They receive proceeds from the sale of properties.

4^th. Trade creditors & Suppliers.

5^th. Senior debenture bond holders.

6^th. Junior (subordinated) debenture bond holders.

7^th. Preferred stock holders.

8^th. Common stock holder .

A pension and a social security are seen in such way that it makes easier to older people out in workforce, to make some way for younger people.
This earlier version on retirement isn’t pleasant to lots of people. They’re assigned in the life’s views on porches. Then all of a sudden it’s not needed, their identity is known for questioning. This retirement is an event that isn’t necessary for people, which they are not looking forward already.

Then until 1980’s those people begin looking up on retirement, its something greater to idleness with no purpose. This notion, on a golden year comes to being. The retirement is a moment when a person can count the social security’s and pensions for lifestyle of travels, a sunset to such faraway land as well as cocktail with an umbrella to the beaches.

These types of view are similar during the time you’ve got nothing, but only a snack in a restaurant menu. How will you have a better life than this?
Did you fall to a trap in seeing the retirement like events, wherein in a flash your lifestyle transforms in better condition? A retirement signals the time for newer opportunity and time to change, in particular when you’re not happy with your work. You might find that your working very hard & without recognizing to sacrifice joys for the present-time for a future you’re hoping is better.

This golden year views on retirement, it might not be the ideal retirement; the pensions were only the things in the past time. Not mentioning the changes, this can happen in the social security, the next years to come. When you have not spend a considerable time to think and plan for transitions of your retirement, this can be event-filled having disillusionments. The idealistic as well as fanciful expectation can clash-out having lots of sets on economic reality.

How will we start in figuring out what’s retirement, or must be? There are following refreshing exercises, its good in trying it out: jot down the perfect day, coming from beginning to the end. What will be essential for you? Search on those list of activity that bringing you enjoyment and fulfillment. What will be things you’d like doing more or you couldn’t live without? The future menu will begin here, with the thing your valuing most.

What do you think you’ll be doing during retirement; because it’s a must to focus on goals? You shouldn’t just relax around and go to beach. There’s a need for multitasking, getting stuffs done. We’re concerned due to the work, which is much longer with the previous generations.

How much will you need for a satellite box? Every month you’ll be charge in every cables or the satellite box at your house. Will you be using those having sufficient frequencies in justifying expenses?

Do you have lots of errands that you need to run within this week? Are you able to eliminate some? Even though the gases are low in prices, it’s good that there’s discipline in reducing the travels to important ones.

Are you taking clothes into cleaners? Have you been taken into those cleaners? Are you exploring your dryers as the cleaner?

What did you do in reducing the use of electricity? Make an inventory of how much appliance, lights, and a lot more have been used this whole day. Try to turn off when passing on them.

How much subscription did you receive? In the obligations per month, are you committed with how many? Are you able to eliminate those?

Do you have several cars? Will you able to place one car at the storage or garage then reduce the usage, license fee, overheads and insurance.

Will you pay for facilities on storage? Then why?
Will you be hiring a maintenance helper for the house, pool, lawn, etc…? Will you be able to do that by your own? Make some thinking on exercises and savings.

A coupon is very in demand nowadays. Will you take advantage on the availability?

In the expenses in terms of recreation, house dining, etc.. How are the expenses? What will that do in your crisis in paring down dining out, etc..?

Will you spend cash with books? Try to remember that a local provider on a library is providing books to all genre.

The policies on your insurance, how is it? did you examine the coverage, the deductibles, and eyeing the reduced premiums?

Did you donate everything you’ll be able to, like that storage stuffs, which can give an advantage on taxes in a charitable deduction the following year?

Will you give gifts to friends and families lesser on a holiday and some occasion in order to limit costs?

They still care and love you, even if you remember only their birthdays. There are some stuff that you’ve got in the house like crystals, antique items, and a lot more makes a wonderful give away. Do give them away and limit those clutters.

Were you able to discipline yourself in eliminating the impulsive buying, even if you’re in groceries or department stores or to order things online.

This is an idea that can spur on people for the senior citizen searching in order to secure their impulsive spending. The hidden cash will be there only if you approve to look. Happily, the retirees got some time in exploring.

The other crucial consideration when you plan the retirement will be when you purchase the superfund or the account on retirement. You might not be able to realize it, that major groups for financial planning’s at Australia don’t recommend an industry fund. It’s due to the fact that an industry fund don’t pay commission to a financial planner. So, how will you assure yourself that you’re comparing roses with roses? To compare an online company known as superratings.com.au or make your comparative study? When you’re sure that you’ve checked those projections in the super nests eggs having greater in one sites, you’ll surely be in excellent condition. 

Recent articles of superliving rates the retirement funds set being overall as best, having ASIC, and their regulator as the excellent in comparing funds. 
You shouldn’t need to abandon the return of goods for investing in the industry funds. The superrating discovered that in a span of one year until 2008, June 30th in the time of financial problems worsening, 7/10 on the excellent performing fund is a industry superfund. It really pays-up making sure you’re the excellent performing funds for long terms. 

A note that I like adding is: many people thought that fund managers are being paid in picking the allocation assets that is yours. The managers of this fund, their work will be in investing the different pools to the excellent performing equity, property lists, fix interests, and also to make commissions for fees. The work, when you’re not speaking to the financial planners are in ensuring the superfund allocations that you’ve got reflecting the risks to returns ration, etc. you’ve known about this risks, you’ve also known how much time till the time of retirement in making up for not so good times. A person having a shorter time till retirement must be conservative in his selection instead of someone that has 40 years work life behind. 

Rather than to set back the planning of retirement efforts to listen with the financial advisers and planners (they have their agenda’s) try to research several basic kinds of investment to you and make some small step on its right path. The fact is, when you learn more, the lesser fear you have in making mistakes. conversely, if you got lots of fears to people when managing the finances as well as investments, its seems that you are taken-in with high fees charges, high-risk adventures, a high lending margin loan & mortgages backed debenture bonds. Don’t be frightened in asking the different fees & what their expected performances in the funds are.