SHAREHOLDERS EQUITY SOLE PROPRIETORSHIP
- difference between the assets and - individual personally owns a
liabilities of a company business
- represents ownership of a firm - the owner has full control regarding
the decision-making of the business.
EQUITY INSTRUMENT
- financial instrument where issuer PARTNERSHIP
(company) agrees to pay an amount - two or more persons bind
to the investor in the future based on themselves to contribute money,
the future earnings of the company, property, or industry to a common
if any fund with the intention of dividing the
- earnings used as basis of the profits and ownership among
amount to be paid to equity themselves.
instrument holder is determined after
setting all required payments CORPORATION
- legal entity has a personality
AUTHORIZED CAPITAL STOCK separate and distinct from the
- total maximum amount stated in the owners/shareholders.
Articles of Incorporation that can be - Responsibility of shareholders to
subscribed to or paid by investors of creditors is only up to the extent of
a corporation if the shares have a their capital contribution.
par value.
WHY INVEST IN EQUITY INSTRUMENTS?
PAR VALUE Investors may earn from equity
- nominal value of the share indicated instruments through 2 Methods:
in the face of the stock certificate
1. CAPITAL APPRECIATION
OUTSTANDING SHARES - rise in the value of an asset
- total shares of stock issued under in relation to the increase in
binding subscription agreements to its market price.
subscribers or stockholders, whether - investors may sell shares
partially or fully paid. they originally bought to
- do not include treasury shares. other investors who are
interested to buy.
TREASURY SHARES
- repurchased or bought back by the 2. DIVIDENDS
company from its stockholders. - payments made to
shareholders representing
THREE MAJOR FORMS OF excess earnings of the
BUSINESS ORGANIZATION: company.
● SOLE PROPRIETORSHIP - paid out quarterly, but some
● PARTNERSHIP companies pay it
● CORPORATION semi-annually or annually.
- distributed to shareholders Other features that may be included with
based on discretion and preference shares are the following:
approval of the board of ● CUMULATIVE
directors - All dividends in arrears
together with the current
NOTE: Stock corporations are not allowed dividend, should be paid prior
to maintain retained earnings more than to paying dividends to
100% of its paid-up capitalization at par ordinary shareholders.
(any additional paid-up capital or excess
over par is excluded). ● CALLABLE
- Allows the issuing
DEBT corporation to retire or
- creditors or lenders possess the repurchase outstanding
legal right to receive payment on the shares within a
amount that they invested or lent predetermined period of a
out. time at a specified price.
EQUITY ● CONVERTIBLE
- shareholders only have an - Allows shareholders to
expectation of being repaid in the convert the preference
future. shares to a states number of
ordinary shares after a
2 TYPES OF SHARES certain date.
1. PREFERENCE SHARES Ordinary shares can be:
- give its holders distinct rights ● PRIVATELY OWNED
that enable them to be - Owned by private investors
prioritized over ordinary and shares are generally, not
shares. publicly traded.
2. ORDINARY SHARES ● PUBLICLY OWNED OR PUBLICLY
- represent the true owners of TRADED
a corporation - Owned by mix of public and
- Called residual owners private investors and shares
- only receive what will remain are actively traded in stock
after all claims of creditors market
and preference shareholders
on the income and assets ● CLOSELY OWNED
are satisfied. - Owned by an individual
investor or a small group of
private investors like a family
● WIDELY OWNED ● Cost reduction
- owned by many unrelated ● Fast execution
individual or institutional ● After-hours trading
parties
EXCHANGE-TRADED FUNDS (ETF)
In recent years, other types of ordinary - happens when a portfolio containing
shares were offered to shareholders to suit various securities is purchased and
different objectives. a share is created based on this
specific portfolio which can be
SUPERVOTING SHARES traded in the exchange.
- have multiple votes associated with
one share STOCK MARKET INDEXES
- intend to show movements of price
NONVOTING ORDINARY SHARES over time instead of the actual stock
- no voting rights. value
- to gain some insight on how a group
STOCK MARKET of stocks could have performed in
- composed of exchanges and over the market.
the counters where shares are
issued and traded publicly The impact of changes in stock prices
- both a primary and secondary can be felt at the following levels:
market. However, the secondary a. Large corporations treat the stock
market is considerably bigger than market as an essential fund source
the primary market for expansion projects.
b. At a macro level, shares account for
DEALERS a significant portion of household
- also called as market makers wealth.
- responsible to set bids and ask price c. Fluctuations in share prices affect
- ensure that there is continuous the expectations of consumers and
liquidity for each available stock in business.
the market.
- Without them, investors would be PHILIPPINE STOCK EXCHANGE
reluctant to purchase shares from - national and sole stock exchange of
unknown firms. the Philippines
- one of the oldest stock exchanges in
DEALERS EARN THROUGH 2 MEANS: Asia starting in 1927 when it was stil
● Spread between bid price and ask Manila Stock Exchange.
price
● Commissions on trades Other initiatives to safeguard interests of the
investors include:
ELECTRONIC COMMUNICATIONS ● Enforcement of static and dynamic
NETWORK AND EXCHANGE-TRADED thresholds to protect against unusual
FUNDS: share price fluctuations.
● Transparency
● Disclosure requirement for publicly
listed companies
● Securities Investors Protection Fund, MARKET CAPITALIZATION
inc. or SiPF - total market value of all outstanding
General Criteria for Admission to Listing shares of a company
in the PSE - multiplying the total outstanding
● Track Record of Profitable shares by the prevailing market price
Operations per share.
● Exception to the 3-year Track
Record Requirement SHARE VALUATION
● Positive Stockholders' Equity - investors to understand how to value
● Market Capitalization shares to be able to assess
● Operating History reasonableness of the price being
● Minimum Capital Requirement offered to them.
● Minimum Offering to the Public - Knowing different share valuation
techniques equip investors with the
right knowledge that will help them
Not exceeding 33% OR ₱50M choose the best stocks that fit their
₱500M whichever is higher investment appetite.
Over ₱500M 25% or ₱100M DIVIDEND DISCOUNT MODEL
to ₱1B whichever is higher ● CASE 1. SHARE WITH NO
GROWTH IN DIVIDEND
Over ₱1B to 20% or ₱250M
● CASE 2. UNEVEN DIVIDEND
₱5B whichever is higher
PAYMENT BASIC VALUATION
Over ₱5B to 15% or ₱750M MODEL
₱10B whichever is higher ● CASE 3. SHARE WITH CONSTANT
GROWTH DIVIDEND(GORDON
Over ₱10B 10% or ₱1B whichever MODEL)
is higher ● CASE 4. SHARE WITH UNEVEN
DIVIDEND GROWTH MODIFIED
GROWTH MODEL
● Minimum Number of Stockholder.
● Valuation of assets
MARKET EFFICIENCY
● Full Payment of issued and
- Setting of share prices in the market
Outstanding Shares
through the interactions of many
● Investor Relation Program
buyers and sellers can be further
explained through market efficiency.
PLATFORMS FOR CAPITAL MARKET
- market price of shares signifies the
Ways to conveniently facilitate trading in the
collective actions that sellers and
Capital Market:
buyers undertake based on currently
● Conventional Brokerage
available information
● Online Trading
● Mutual Funds
-
Detachable warrants are
EFFICIENT MARKET HYPOTHESIS (EMH) actively traded in broker and
THEORY (John Muth) dealer markets.
- describes the behavior of a perfect WARRANTS VS. STOCK RIGHTS
market.
WARRANTS STOCK RIGHTS
The Efficient Market Hypothesis theory says ● exercisable ● can only be
that: for several used within a
1. Securities are typically in years few
equilibrium, they are fairly priced and ● issued at months
that their expected returns equal an exercise ● issued below
their required returns. price higher the prevailing
2. At any point in time, security prices than the market price
fully reflect all information available prevailing
about the firm and its securities, and market price
these prices react swiftly to new
information.
DERIVATIVE SECURITIES
3. Because stocks are fully and fairly
- not debt or equity but derives its
priced, investors need not waste
value on an underlying asset which
their time trying to find mispriced
is another security
(undervalued or overvalued)
- most popular type is options.
securities.
OPTIONS
HYBRID SECURITIES
- financial instruments that grants the
- Financial instruments that carry
holder a chance to sell or buy a
characteristics of both debt (e.i fixed
specific asset at a set price on or
contractual payment) and equity
before an expiration date.
(ownership features) instruments
2 TYPES OF OPTIONS:
● STOCK PURCHASE WARRANTS
- instruments that grant their
● CALL OPTION
holders the right to buy a
- option to buy a specified
specific number of shares of
number of shares on or
the issuer at a specified price
before a specific date at a
for a given period of time
stated strike price.
- Similar to a stock right.
● PUT OPTION
● WARRANTS
- option to sell a specified
- detachable, can be sold by
number of shares on or
bondholders without selling
before a specific date at a
the security or bond it is
stated strike price
attached to.
