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Common Stock

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Definition of Common Stock

Common Stock Image 1

Common Stock

A financial security that represents an ownership claim on the
assets and earnings of a company. This claim is valid after the
claims of the debt providers and preferred stockholders have been
satisfied.


common stock

Ownership shares in a publicly held corporation.


Common stock

Shares of ownership sold to the public.


Common Stock

That part of the capital stock of a corporation that carries voting rights and represents
the last claim on assets and dividends.


Common stock

These are securities that represent equity ownership in a company. common shares let an
investor vote on such matters as the election of directors. They also give the holder a share in a company's
profits via dividend payments or the capital appreciation of the security.



Related Terms:

BOOK VALUE OF COMMON STOCK

The theoretical amount per share that each stockholder would receive if a company’s assets were sold on the balance sheet’s date. Book value equals:
(stockholders’ equity) / (common stock shares outstanding)



Common stock equivalent

A convertible security that is traded like an equity issue because the optioned
common stock is trading high.


Common stock market

The market for trading equities, not including preferred stock.


Common Stock Image 2

Common stock/other equity

Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.


Common stock ratios

Ratios that are designed to measure the relative claims of stockholders to earnings
(cash flow per share), and equity (book value per share) of a firm.


Cost of Common Stock

The rate of return required by the investors in the common stock of
the company. A component of the cost of capital.


Earnings per share of common stock

How much profit a company made on each share of common stock this year.


Balanced mutual fund

This is a fund that buys common stock, preferred stock and bonds. The same as a
balanced fund.


capital stock

Ownership shares issued by a business corporation. A business
corporation may issue more than one class of capital stock shares.
One class may give voting privileges in the election of the directors of the
corporation while the other class does not. One class (called preferred
stock) may entitle a certain amount of dividends per share before cash
dividends can be paid on the other class (usually called common stock).
stock shares may have a minimum value at which they have to be issued
(called the par value), or stock shares can be issued for any amount
(called no-par stock). stock shares may be traded on public markets such
as the New York stock Exchange or over the Nasdaq network. There are
about 10,000 stocks traded on public markets (although estimates vary
on this number). In this regard, I find it very interesting that there are
more than 8,000 mutual funds that invest in stocks.


Capital Structure

The combination of debt, preferred stock, and common stock used
by a company to provide capital for the purchase of its fixed
assets


Consolidation

A summarization of the financial statements of a parent company and
those of its subsidiaries over which it has voting control of common stock.


Conversion premium

The percentage by which the conversion price in a convertible security exceeds the
prevailing common stock price at the time the convertible security is issued.


Conversion ratio

The number of shares of common stock that the security holder will receive from
exercising the call option of a convertible security.


Convertible bonds

Bonds that can be converted into common stock at the option of the holder.



Convertible preferred stock

Preferred stock that can be converted into common stock at the option of the holder.


Convertible price

The contractually specified price per share at which a convertible security can be
converted into shares of common stock.


Convertible security

A security that can be converted into common stock at the option of the security holder,
including convertible bonds and convertible preferred stock.


Cost of Equity

Same as the cost of common stock. Sometimes viewed as the
rate of return stockholders require to maintain the market value of
the company's common stock.


Debt/equity ratio

Indicator of financial leverage. Compares assets provided by creditors to assets provided
by shareholders. Determined by dividing long-term debt by common stockholder equity.


Deferred equity

A common term for convertible bonds because of their equity component and the
expectation that the bond will ultimately be converted into shares of common stock.


Discretionary cash flow

Cash flow that is available after the funding of all positive NPV capital investment
projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on.


Dividend discount model (DDM)

A model for valuing the common stock of a company, based on the
present value of the expected cash flows.


dividend growth method

a method of computing the cost
of common stock equity that indicates the rate of return
that common shareholders expect to earn in the form of
dividends on a company’s common stock


Employee stock fund

A firm-sponsored program that enables employees to purchase shares of the firm's
common stock on a preferential basis.



Equity

Ownership. common stock represents equity in a corporation.


Equity

The net worth of a business, consisting of capital stock, capital (or paid-in) surplus (or retained earnings), and, occasionally, certain net worth reserves. common equity is that part of the total net worth belonging to the common shareholders. Total equity includes preferred shareholders. The terms common stock, net worth, and common equity are frequently used interchangeably.


Equity multiplier

Total assets divided by total common stockholders' equity; the amount of total assets per
dollar of stockholders' equity.


Equity Security

An ownership interest in an enterprise, including preferred and common stock.


Ex-rights date

The date on which a share of common stock begins trading ex-rights.


Exchange offer

An offer by the firm to give one security, such as a bond or preferred stock, in exchange for
another security, such as shares of common stock.


Exchangeable Security

Security that grants the security holder the right to exchange the security for the
common stock of a firm other than the issuer of the security.


Factor analysis

A statistical procedure that seeks to explain a certain phenomenon, such as the return on a
common stock, in terms of the behavior of a set of predictive factors.


Fixed-income equivalent

Also called a busted convertible, a convertible security that is trading like a straight
security because the optioned common stock is trading low.


Formula basis

A method of selling a new issue of common stock in which the SEC declares the registration
statement effective on the basis of a price formula rather than on a specific range.


Growth stock

common stock of a company that has an opportunity to invest money and earn more than the
opportunity cost of capital.


Hybrid security

A convertible security whose optioned common stock is trading in a middle range, causing
the convertible security to trade with the characteristics of both a fixed-income security and a common stock
instrument.


Income stock

common stock with a high dividend yield and few profitable investment opportunities.


Letter stock

Privately placed common stock, so-called because the SEC requires a letter from the purchaser
stating that the stock is not intended for resale.


Long-term debt/capitalization

Indicator of financial leverage. Shows long-term debt as a proportion of the
capital available. Determined by dividing long-term debt by the sum of long-term debt, preferred stock and
common stockholder equity.


Market conversion price

Also called conversion parity price, the price that an investor effectively pays for
common stock by purchasing a convertible security and then exercising the conversion option. This price is
equal to the market price of the convertible security divided by the conversion ratio.


Market value ratios

Ratios that relate the market price of the firm's common stock to selected financial
statement items.


NASDAQ

National Association of Securities Dealers Automatic Quotation System. An electronic quotation
system that provides price quotations to market participants about the more actively traded common stock
issues in the OTC market. About 4,000 common stock issues are included in the NASDAQ system.


Net worth

common stockholders' equity which consists of common stock, surplus, and retained earnings.


net worth

Book value of common stockholders’ equity plus preferred stock.


Payout ratio

Generally, the proportion of earnings paid out to the common stockholders as cash dividends.
More specifically, the firm's cash dividend divided by the firm's earnings in the same reporting period.


Preemptive right

common stockholder's right to anything of value distributed by the company.


Preference stock

A security that ranks junior to preferred stock but senior to common stock in the right to
receive payments from the firm; essentially junior preferred stock.


Preferred stock

A security that shows ownership in a corporation and gives the holder a claim, prior to the
claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most
preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar
amount or as a percentage of par value. This stock does not usually carry voting rights. The stock shares
characteristics of both common stock and debt.


Preferred Stock

A type of equity security where holders have a claim on the assets
and earnings of a company after the debt providers but before the
holders of common stock. Preferred stock generally pays a fixed
or floating rate dividend each year.


Preferred stock

A type of stock that usually pays a fixed dividend prior to any distributions
to the holders of common stock. In the event of liquidation, it must be paid
off before common stock. It can, but rarely does, have voting rights.


preferred stock

stock that takes priority over common stock in regard to dividends.


Preferred Stock Stock that has a claim on assets and dividends of a corporation that are prior

to that of common stock. Preferred stock typically does not carry the right to vote.


Price/book ratio

Compares a stock's market value to the value of total assets less total liabilities (book
value). Determined by dividing current stock price by common stockholder equity per share (book value),
adjusted for stock splits. Also called Market-to-Book.


Prices

Price of a share of common stock on the date shown. Highs and lows are based on the highest and
lowest intraday trading price.


Return on equity (ROE)

Indicator of profitability. Determined by dividing net income for the past 12
months by common stockholder equity (adjusted for stock splits). Result is shown as a percentage. Investors
use ROE as a measure of how a company is using its money. ROE may be decomposed into return on assets
(ROA) multiplied by financial leverage (total assets/total equity).


Return on total assets

The ratio of earnings available to common stockholders to total assets.


Rights offering

Issuance of "rights" to current shareholders allowing them to purchase additional shares,
usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the
offering. Rights are often transferable, allowing the holder to sell them on the open market to others who may
wish to exercise them. Rights offerings are particularly common to closed end funds, which cannot otherwise
issue additional common stock.


Seasoned new issue

A new issue of stock after the company's securities have previously been issued. A
seasoned new issue of common stock can be made by using a cash offer or a rights offer.


Specialist

On an exchange, the member firm that is designated as the market maker (or dealer for a listed
common stock). Only one specialist can be designated for a given stock, but dealers may be specialists for
several stocks. In contrast, there can be multiple market makers in the OTC market.


Stated conversion price

At the time of issuance of a convertible security, the price the issuer effectively
grants the security holder to purchase the common stock, equal to the par value of the convertible security
divided by the conversion ratio.


Stock exchanges

Formal organizations, approved and regulated by the Securities and Exchange Commission
(SEC), that are made up of members that use the facilities to exchange certain common stocks. The two major
national stock exchanges are the New York stock Exchange (NYSE) and the American stock Exchange (ASE
or AMEX). Five regional stock exchanges include the Midwest, Pacific, Philadelphia, Boston, and Cincinnati.
The Arizona stock exchange is an after hours electronic marketplace where anonymous participants trade
stocks via personal computers.


Stock index option

An option in which the underlying is a common stock index.


Stock option

An option in which the underlying is the common stock of a corporation.


stock option

a right allowing the holder to purchase shares of common stock during some future time frame and at a specified price


Stock repurchase

A firm's repurchase of outstanding shares of its common stock.


Take-up fee

A fee paid to an underwriter in connection with an underwritten rights offering or an
underwritten forced conversion as compensation for each share of common stock he underwriter obtains and
must resell upon the exercise of rights or conversion of bonds.


Transferable put right

An option issued by the firm to its shareholders to sell the firm one share of its
common stock at a fixed price (the strike price) within a stated period (the time to maturity). The put right is
"transferable" because it can be traded in the capital markets.


Treasury stock

common stock that has been repurchased by the company and held in the company's treasury.


Weighted Average Cost of Capital (WACC)

The weighted average of the costs of the capital components
(debt, preferred stock, and common stock)


Acquisition of stock

A merger or consolidation in which an acquirer purchases the acquiree's stock.


Adjustable rate preferred stock (ARPS)

Publicly traded issues that may be collateralized by mortgages and MBSs.


American Stock Exchange (AMEX)

The second-largest stock exchange in the United States. It trades
mostly in small-to medium-sized companies.


Auction rate preferred stock (ARPS)

Floating rate preferred stock, the dividend on which is adjusted every
seven weeks through a Dutch auction.


Beta equation (Stocks)

The beta of a stock is determined as follows:
[(n) (sum of (xy)) ]-[(sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[(sum of x) (sum of x)]
where: n = # of observations (24-60 months)
x = rate of return for the S&P 500 Index
y = rate of return for the stock


Capital Stock

The total amount of plant, equipment, and other physical capital.


Cash flow per common share

Cash flow from operations minus preferred stock dividends, divided by the
number of common shares outstanding.


Common-base-year analysis

The representing of accounting information over multiple years as percentages
of amounts in an initial year.
common-size analysis The representing of balance sheet items as percentages of assets and of income
statement items as percentages of sales.


common body of knowledge (CBK)

the minimum set of knowledge needed by a person to function effectively in a particular field


Common market

An agreement between two or more countries that permits the free movement of capital
and labor as well as goods and services.


Common Shares

Are equity instruments that take no security against assets, have no fixed terms of repayment and pay no fixed dividends.


common-size balance sheet

Balance sheet that presents items as a percentage of total assets.


common-size income statement

Income statement that presents items as a percentage of revenues.


Conflict between bondholders and stockholders

These two groups may have interests in a corporation that
conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective
covenants work to resolve these conflicts.


Consigned stocks

Inventories owned by a company, but located on the premises
of its agents or distributors.


Convertible exchangeable preferred stock

Convertible preferred stock that may be exchanged, at the
issuer's option, into convertible bonds that have the same conversion features as the convertible preferred
stock.


Cost of Preferred Stock

The rate of return required by the investors in the preferred stock of
a company. A component of the cost of capital.


Cumulative preferred stock

Preferred stock whose dividends accrue, should the issuer not make timely
dividend payments. Related: non-cumulative preferred stock.


Departmental stocks

The informal and frequently unauthorized retention of excess inventory on the shop floor, which is used as buffer safety stock.


Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.


Dividend yield (Stocks)

Indicated yield represents annual dividends divided by current stock price.


Employee stock ownership plan (ESOP)

A company contributes to a trust fund that buys stock on behalf of
employees.


Employee Stock Ownership Plan (ESOP)

a profit-sharing compensation program in which investments are made in
the securities of the employer


Employee Stock Ownership Plan (ESOP)

A fund containing company stock and owned by employees, paid for by ongoing contributions by the employer.


Exchange of stock

Acquisition of another company by purchase of its stock in exchange for cash or shares.


Floor stocks

Low-cost, high-usage inventory items stored near the shop floor,
which the production staff can use at will without a requisition and which are
expensed at the time of receipt, rather than being accounted for through a formal
inventory database.



 

 

 

 

 

 

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