2. Shares
Definition: Shares are the unit of equity
ownership in a corporation. This ownership is
represented by a stock certificate, which
names the company and the shareowner.
3. Shares
Dividend is the distribution of earnings to
shareholders, prorated by class of security
and paid in the form of money, stock, scrip,
or, rarely, company products or property.
The amount is decided by the board of
directors and is usually paid quarterly.
Dividends must be declared as income in the
year they are received.
4. Shares
Issuing shares
-Public issue: Shares can be advertised in the press and can
be sold directly. This is usually done on the advice of a
specialist company called issuing house.
-Offer for sale: The shares are sold to the issuing house
which then sells them itself to institutions or stockbrokers.
-Placing: With this method the shares are sold in blocks of
quite large numbers to institutions. Underwriters are
people or companies who agree to buy any shares from
an issue which are not sold to the public or to institutions.
-Rights issue: If a company is successful enough it can often
go back to its own shareholders to sell them even more
shares. In order to make sure that they buy the shares the
company will usually offer the new shares at a cheaper
price than the normal shares.
5. Stocks and Shares
The issuing of shares (GB) or stocks (US)
means offering them for sale to the public.
Floating a company or Making a flotation:
offering shares or stocks for sale to the public
for the first time.
IPO: Initial public offering
6. Stocks and Shares:
Transactions
At the LD Stock Exchange, share transactions
do not have to be settled until the account
day or settlement day at the end of a two-
week period. This allows speculators:
To buy shares hoping to resell them at higher
price before they actually pay for them, or
To sell shares, hoping to buy them back at a
lower price (Short selling)
7. Stocks and Shares:
Companies
Companies use a bank to underwrite the
issue.
Bank guarantees to purchase securities at an
agreed price on a certain day.
Companies can raise more money by issuing
new shares:
offer a rights issue to existing shareholders
at lower market price
8. Stocks and Shares:
Companies
Companies can turn part of their profit into
capital by issuing new shares to shareholders
in stead of paying dividends.
GB: Bonus issue, script issue,
capitalization issue,
US: stock dividend, stock split.
9. Stocks and Shares:
Companies
US corporations are permitted to reduce the
amount of their capital by buying back their
own shares, known as treasury stock.
The same applied to VN to award key
personnel (Sacombank)
In the UK, this is not allowed to protect
companies’ creditors.
10. Stocks and Shares:
Markets
Primary markets:
Over-the-counter market: small and new
companies. (Unlisted securities market).
Secondary markets:
Major stock exchanges: companies to fulfill
a large number of requirements, e.g. issue
independently-audited annual reports.
11. Stocks and Shares:
Shareholder rights
Vote at General Meetings
Receive dividend
Receive part of company’s residual value in
case of bankruptcy
Sell their share on the secondary market
12. Stocks and Shares:
Share price
Reflects how well or badly the company is
doing,
May differ from its nominal, face, or par value
Share premium (GB) or paid-in surplus
(US): the amount of money of shares sold at
above their par value
13. Stocks and Shares:
People involved
Institutional investors: pension funds,
banks, insurance companies.
Bulls: buy securities, expect their price to
rise, so they can resell them before the next
settlement day.
Bears: sell securities, hoping to buy them
back at a lower price before the next
settlement day.
14. Stocks and Shares:
People involved
Stags: buy new share issue, hoping to resell
them at a profit (if the issue is over-
subscribed).
Stockbrokers: members of stock exchange,
provide advice to shareholders.
Market-makers: wholesalers, who guarantee
to make a market at all times with brokers.
15. Stocks and Shares:
People involved
In-siders: occupy a position of trust &
possess information not known to the public.
in-sider trading is illegal.
Arbitrageurs: buy stakes in companies
involved (or expected to be involved) in
takeover bids.
16. Types of Shares
Ordinary shares (Common stock): shares
with voting rights.
Participation certificates: shares without
voting rights.
Preference shares: receive a fixed dividend
which must be paid in full before any dividend
is paid on other shares.
(interest payments are deductible, dividends
are not companies issue bonds)
17. Types of Shares
Deferred shares:
do not receive a dividend until other
categories of shares have had a dividend,
but might earn a higher dividend if the
company does well.
Blue chips: considered to be without risk.
Widely-held stocks: indicators of market
performance (barometer / bellwether stocks)
18. Types of Shares
Growth stock:
Is expected to appreciate in capital value,
Has high purchasing price, and
A low current rate of return.
Defensive stock (income stock): offers good
yield but limited chance of a rise or decline in
price.
Mutual fund (Unit trust): invest small investor’s
money in a wide portfolio of securities
19. Bonds
Issued by companies, governments and
financial institutions when they need to
borrow money.
Pay fixed rate of interest, and are repaid
after a fixed period, known as their
maturity.
Are liquid, can be sold on the secondary
market until they mature
20. Bonds
Above par: a bond whose market value is
higher than its face value.
A floating rate bond: the coupon remains
the same but the yield will change.
Coupon: amount of interest a bond pays
Yield: coupon payments expressed as a
percentage of its price on the secondary
market
21. Bonds
Private ratings companies provide
investment grade to bond-issuing
companies.
Treasury Bonds (gilts): long-term
government bonds
Treasury Bills: short-term instruments with
the government sells to and buys from the
commercial banks, to regulate the money
supply.
