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 For BFINAN2 Students Equity Securities  A.Classification of Shares of Stock in Corporate Books1. Authorized - The maximum number of shares of stock that a company can issue. It's specified initially in the company's charter, but it can be changed with shareholder approval. It is also called authorized shares or shares authorized. 2. Issued - Issued shares include the stock a company sells publicly in order to generate capital and the stock given to insiders as part of their salaries. Issued shares do not include shares the corporation holds in its treasury stock or shares that are retired by the corporation after repurchase. The amount of issued shares can be all or part of the total amount of authorized shares of a corporation. 3. Treasury - Treasury stock is created when a company does a share buyback and purchases its shares on the open market. This can be advantageous to shareholders because it lowers the number of shares outstanding. 4. Outstanding - Stock currently held by investors, including restricted shares owned by the company's officers and insiders, as well as those held by the public. Shares that have been repurchased by the company are not considered outstanding stock. B. Valuation of Shares of Stock1. Par Value - This is face value of the stock. 2. Stated Value - A value that, instead of being par value, is assigned to a corporation's stock for accounting purposes. Stated value has no relation to market price. A stock without a par value has no stated value, allowing the corporation to issue it for any amount per share that the board of directors determines to be appropriate. 3. Book Value - Book value is the accounting value of a firm. It has two main uses: (1)It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated;(2) By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced; and (3)In personal finance, the book value of an investment is the price paid for a security or debt investment. When a stock is sold, the selling price less the book value is the capital gain (or loss) from the investment. 4. Market Value - this is the price at which someone is willing to pay for each share of stock. C. Types of Equity Securities1. Common Stocks - These are securities representing equity ownership in a corporation, providing voting rights, and entitling the holder to a share of the company's success through dividends and/or capital appreciation. In the event of liquidation, common stockholders have rights to a company's assets only after bondholders, other debt holders, and preferred stockholders have been satisfied. 2. Preferred Stocks - Capital stock which provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of a liquidation. Like common stock, preferred stocks represent partial ownership in a company, although preferred stock shareholders do not enjoy any of the voting rights of common stockholders. Also unlike common stock, a preferred stock pays a fixed dividend that does not fluctuate, although the company does not have to pay this dividend if it lacks the financial ability to do so. The other topics will be discussed in class. Whatever we can't discuss on Monday will be posted here.
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