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Order of Asset Distribution upon Liquidation:
- Secured Debt
- Unsecured Debt
- Preferred Stockholders
- Common Stockholders
Reasons a company would repurchase its own stock:
- 1. to increase Earnings per Share
- 2. to finance future acquisitions (i.e. a stock for stock acquisition)
- 3. to provide stock for employee stock option plans
- 4. to fight a takeover attempt
Formula to calculate number of Outstanding Shares is simply:
Issued Stock - Treasury Stock = Outstanding Shares
- Outstanding Shares are the only shares that Vote
- Receive Dividends
- Used to Calculate Earnings per Share
Treasury Stock (or Repurchased Stock)
Only the Board of Directors makes the decision to repurchase shares).
Important Points to Remember:
- 1. does not vote
- 2. does not receive dividends
- 3. is not used in the Earnings Per Share (EPS) calculation
- 4. appears on the balance sheet as a deduction from issued stock
Which is the riskiest form of stock?
Common Stock - as it is always paid last
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