ib 12 471.13 winter 2012. securities & investment
Post on 25-Dec-2015
215 Views
Preview:
TRANSCRIPT
Accounting & Value
How do we know if we’re succeeding now? we’ll succeed in the future?
What’s our business worth?
3535
Value
Future focus revenue generation
• relative to other revenue options
15
02
15
03
15
04
15
05
15
06
15
07
15
08
15
09
15
10
15
11
35 35
5
35
5
Did we make a wise investment?
Value
15
02
15
03
15
04
15
05
15
06
15
07
15
08
15
09
15
10
15
11
35
5 5 5
14% 14% 14%
Value
Did we make a wise investment?
15
02
15
03
15
04
15
05
15
06
15
07
15
08
15
09
15
10
15
11
35
-35
5 2 12
Value
Did we make a wise investment?
15
02
15
03
15
04
15
05
15
06
15
07
15
08
15
09
15
10
15
11
35
5 2 12 -3 0 0 0 11
25
Did we make a wise investment?
The answer depends on amount certainty variability
Value
• what other investments are offering
rate
risk
β
Did we make a wise investment?
The answer depends on amount certainty variability
Value
• what other investments are offering
relative rate
relative risk
relative β
Value Varies
1502 Venice Import-Export issues 7 shares
• valued at 5 ducats each
Let’s pretend there’s a stock market
15
02
15
03
15
04
15
05
15
06
15
07
15
08
15
09
15
10
15
11
5
Value
Did we make a wise investment? answer based on investor’s subjective
• perceptions
• desires“appetite for risk”
fear & greed
future focus
Stock Exchange
sell & purchase stocks, bonds, “other”
Primary market newly issued
Secondary market previously issued
Securities markets
Equity financing common stocks
• par value
• issuing price
• market value
• book value
• dividends
• capital gains
Buying & Selling Stocks
Purchase or sale of shares Round lot
• in units of 100
Odd lot• in units of other than 100
Buying & Selling Stocks
Market order buy or sell a security
• at current market price
Limit order buy a security
• if price <= certain level
Stop order sell a security
• if price falls below certain level
Securities markets
Debt financing bond
• written commitment
• borrower will pay firm
• lender will get investor
• stated future date principal + interest
Securities markets
Debt financing bonds
• variations maturity
» payment date tax status potential yield
» interest rate terms of contract
Securities markets
Debt financing bonds
• Secured
• Unsecured debentures
• Bearer bonds coupon bonds
• Registered bonds
Securities markets
Debt financing bonds
• Retiring Bonds Callable bonds Sinking fund provision Serial bond Convertible bond
Securities markets
participants Investment bankers
primary market
Stockbrokers secondary market
• Full-service brokerage
• Discount brokerage
Securities markets
Margin Trading down payment broker borrows from bank
• secured by stock
broker charges investor interest investor pays off financing
• when they sell the stock
• hopefully at a profit
Securities markets
Short Sale• sell first
• buy later
investor “borrowing” shares from broker• for a period of time
betting on price going down
Securities markets
Reading the Market Bear market
• period of falling stock prices
Bull market• period of rising stock prices
Random walk
Securities markets
Reading the Market Market indexes
• a basket of stocks
• summarize trends overall market specific industries/groups
Reading Stock Quotations
Your Daily Paper Company Sales High Low Close Change
Inco 376 030 29.150 28.500 28.600 -.400
stock
highestpricetoday
sales lowestpricetoday
changesince
yesterday’sclose
Corporate Debt
a company takes on debt because it has to
• can’t get equity
• gets caught short
• survival
because it wants to• if cost of debt is less than
cost of equity profit generated
Corporate Debt
short-term trade credit line of credit accounts payable factoring accounts receivable commercial paper loan
Corporate Debt
short-term trade credit
• open book credit
• promissory note
• trade draft trade acceptance
Corporate Debt
short-term line of credit
specified amount technically, not guaranteed
• Revolving Credit Agreement guaranteed commitment fee
Corporate Debt
short-term accounts payable
• stretch payments
• can be costly reputation interest
• common
Corporate Debt
short-term commercial paper
• unsecured notes
• sold for less than face value
• repurchased in 30 to 270 days for face value
• need to be creditworthy
Corporate Debt
long-term loan
• fixed or floating rate
• quick to process
• do not require divulging business plans
Debt vs. Equity
debt equity
usual cost to company less more
when repaid fixed never
claims onincome fixed & regular dividends
assets first last
affect oncontrol no yes
flexibility yes no
tax implications
company before tax after tax
investor/lenderinterest
deductibledividends not
deductible
Preferred shares
like bonds fixed payments priority over common shares
unlike bonds no maturity dates no legal penalty for non-payment
½ way between debt & equity
Exam
proposed chapters• ch 3
Conducting Business Ethically and Responsibly
• ch 4 Entrepreneurship, Small Business, and New Venture Creation
• ch 11 Understanding Accounting
• ch 16 Financial Decisions and Risk Management
top related