debt capital -- all long-term borrowing incurred by a firm, including bonds
equity capital -- the long-term funds provided by the firm's owners, the stockholders
privately owned stock -- all common stock of a firm owned by a single individual
closely owned stock -- all common stock of a firm and by a small group of investors (such as a family)
publicly owned stock -- common stock of a firm's owner by a broad group of unrelated individuals or institutional investors
par value stock -- a relatively useless value for a stock established for legal purposes in the firm's corporate charter
preemptive right -- allows common stockholders to maintain their proportionate ownership in the corporation when new shares are issued
dilution of ownership -- occurs when a new stock issue results in each president shareholder having a claim on a smaller par of the firm's earnings than previously
rights -- financial instruments that allow stockholders to purchase additional shares at a price below the market price, in direct proportion to their number of owned shares
authorized shares -- the number of shares of common stock that a firm's corporate charter allows it to issue
outstanding shares -- the number of shares of common stock held by the public
treasury stock -- the number of shares of outstanding stock that have been repurchased by the firm
issued shares -- the number of shares of common stock that have been put into circulation; the sum of outstanding shares and treasury stock
supervoting shares -- stock that carries with it multiple votes per share rather than a single vote per share typically given on regular shares of common stock
nonvoting common stock -- common stock that carries no voting rights; issued when the firm wishes to raise capital through the sale of common stock but does not want to give up its voting control
proxy statement -- a statement transferring the votes of a stockholder to another party
proxy battle -- the attempt of a nonmanagement group to gain control of the management of a firm by soliciting a sufficient number of proxy votes
American depositary receipts (ADRs) -- claims issued by a representing ownership of shares of a foreign company's stock held on deposit by the US bank in the foreign market and issued in dollars to US investors
par value preferred stock -- preferred stock with a stated face value that is used with the specified dividend percentage to determine the annual dollar dividend
no par preferred stock -- preferred stock with no stated face value but with a dated annual dollar dividend
cumulative (preferred Stock) -- preferred stock for which all passed (unpaid) dividends in arrears, along with the current dividend, must be paid before dividends can be paid to common stockholders
noncumulative (preferred Stock) -- preferred stock for which passed (unpaid) dividends do not accumulate
conversion feature -- a feature of convertible preferred stock that allows holders to change each share into a stated number of shares of common stock
venture capital -- privately raised external equity capital used to fund early-stage firms with attractive growth prospects
venture capitalists (VCs) -- providers of venture capital; typically, formal businesses that maintain strong oversight over the firms they invest in and that have clearly defined exit strategies
angel capitalists -- wealthy individual investors who do not operate as a business but invest in promising early-stage companies in exchange for a portion of the firm's equity
initial public offering (IPO) -- the first public sale of a firm's stock
prospectus -- a portion of a security registration statement that describes the key aspects of the issue, the issuer, and its management and financial position
red herring -- a preliminary prospect is made available to prospective investors during the waiting period between the registration statements filing with the SEC and its approval
investment banker -- financial intermediary that specializes in selling new security issues and advising firms with regard to major financial transactions
underwriting -- the role of the investment banker in bearing the risk of reselling, at a profit, the securities purchased from an issuing corporation at an agreed-upon price
underwriting syndicate -- a group formed by an investment banker to share the financial risk associated with underwriting new securities
selling group -- a large number of brokerage firms that join the originating investment bankers; each accepts responsibility for selling a certain portion of a new security issue on a commission basis
expected return -- the return that is expected to be earned on a given asset each period over on infinite time horizon
efficient market hypothesis (EMH) -- theory describing the behavior of an assumed "perfect" market in which:
- securities are typically in equilibrium
- security prices fully reflect all public information available and react swiftly to new information
- because stocks are fully and fairly priced, investors need not waste time looking for mis-priced securities
Zero growth model -- an approach to dividend valuation that assumes a constant, non growing dividend stream
constant growth model -- a widely cited dividend valuation approach that assumes that dividends will grow at a constant rate, but a rate that is less than the required return
Gordon model -- a common name for the constant growth model that is widely cited in dividend valuation
variable growth model -- a dividend valuation approach that allows for a change in the dividend growth rate
free cash flow valuation model -- a model that determines the value of an entire company as the preset value of its expected free cash flows discounted at the firm's weighted average cost of capital, which is its expected average future cost of funds over the long run
book value per share -- the amount per share of common stock that would be received if all of the firm's assets were sold for their exact book value and the proceeds remaining after paying all liabilities, including preferred stock, were divided among the common stockholders
liquidation value per share -- the actual amount per share of common stock that would be received if all of the firm's assets were sold for their market value, liabilities were paid, and any remaining money were divided among the common stockholders
Price/earnings multiple approach -- a popular technique used to estimate the firm's share value; calculated by multiplying the firms expected earnings per share (EPS) by the average price/earnings (P/E) ratio for the industry
