CORPORATE SECURITIES

MA. PAMELA Z. SEPULVEDA

BSA 4
FINANCIAL MANAGEMENT 102
AUGUST 23, 2018
C O R P O R AT I O N SHAREHOLDERS B OA R D O F D I R E C TO R S
CORPORATE SECURITES

S E N• I EQUITY
O R M A N AG E R
• DEBT
CORPORATE CAPITAL
• The mix of assets or resources a company can draw on
in financing its business.

• Equity or debt (financing)

STOCKS
• A stock (also known as “shares” and “equity”) is a type
of security that signifies ownership in a corporation and
represents a claim on part of the corporation's assets
and earnings.
• Two main types of stock: common and preferred.
COMMON STOCK
• Common stock shareholders have certain rights that
are specified in the corporation's charter and bylaws.
COMMON STOCK:
RIGHTS AND PRIVILEGES
• Stock Certificate: A shareholder has the right to receive one or
more certificates as proof of ownership of a stock if the company
issues physical shares.
• Each certificate will state the name of the corporation, the owner's name
and the number of owned shares, plus the names of the transfer agent
and the registrar. It is also signed by an authorized corporate officer.
• The transfer agent for the company keeps a list of all registered
stockholders and cancels old stock certificates while issuing new ones
when shares are transferred. The registrar verifies that the company has
not issued more shares than authorized by its charter.
COMMON STOCK:
RIGHTS AND PRIVILEGES
• Limited Liability: An individual shareholder cannot be held responsible
for the company's debts: if the business fails, shareholders only lose their
original investment. If the business thrives, however, the shareholders
expect to share in the company's profits in the form of dividends and in
the increased value of company stock, as reflected in the stock price.
• Right to Earnings: The shareholder's most fundamental right is the
ability to share in the earnings of the company - both through the
dividends that might be paid as well as the increase in the value of the
stock itself.
COMMON STOCK:
RIGHTS AND PRIVILEGES
• Right of Transfer: A shareholder may freely transfer shares by selling them,
giving them away or bequeathing them to heirs.
• Right to Dividends: Common stock does not necessarily pay a specific
annual dividend. The board of directors will decide what dividends, if any,
are paid to common stockholders. Dividends are usually paid on a
quarterly basis and are taxable in the year in which they are received.
COMMON STOCK:
RIGHTS AND PRIVILEGES
• Voting Rights: Only common stockholders have voting rights. The number of
votes that each shareholder gets is determined by the number of shares he or
she owns.
• There are two types of voting rights: cumulative and statutory.
• Statutory voting is the standard "one share one vote" counting that governs voting
procedures in most corporations. Shareholders may cast one vote per share either for or
against a board of director nominee, but may not give more than one vote per nominee
per share.
• Cumulative Voting improves minority shareholders' chances of naming nominees to the
board of directors. In general, shareholders are able to weight their votes towards one or
more candidates.
COMMON STOCK:
RIGHTS AND PRIVILEGES
• Right of inspection: Stockholders have the right to inspect company books
and records, including the minutes of shareholder meetings and the list of
stockholders.
• Preemptive right: Refers to the right of shareholders to maintain a
proportional ownership by purchasing newly issued shares of common stock
from the company before they are offered to the public. Otherwise, a new
issue would dilute the value of their investment.
COMMON STOCK:
RIGHTS AND PRIVILEGES
• Stock buybacks: A corporation that wants to increase the price of its
shares will sometimes buy back shares on the open market. The repurchased
stocks, called treasury stock, are put aside as non-voting shares that do not pay
a dividend.
• Stock dividends: Instead of paying dividends to shareholders in cash, a
company may elect to pay dividends with additional shares of stock. Unlike
cash dividends, which are taxable in the year in which they are received, stock
dividends are taxable only when they are sold.
PREFERRED STOCK
• Holders receive available dividend payments before
common stockholders, and they also receive payments
from liquidation of assets before common stockholders
if the company must declare bankruptcy.
PREFERRED STOCK:
TYPES

• Cumulative preferred stock: If a corporation fails to

pay the full dividend on its preferred stock, all preferred
dividends are considered to be in arrears and must be
paid to holders of cumulative preferred stock before
common stockholders receive their dividends.
PREFERRED STOCK:
TYPES
• Convertible preferred stock: Convertible preferred
stock can be exchanged for common stock at a specific
price and at the discretion of the shareholder. When
this occurs, the value of the common stock for which
the preferred stock is exchanged is called the conversion
price.
PREFERRED STOCK:
TYPES
• Callable preferred stock: When a company issues
callable preferred stock, it has the right to repurchase
the stock, or call it, at a specific price in the future. This
price, called the call price, is usually higher than the
stock's par value, in order to give investors an incentive
to buy the stock.
PREFERRED STOCK:
TYPES

• Participating preferred stock: Pays the holder a

higher dividend above and beyond a certain level of its
common dividend when a company has extremely good
earnings in a given year.
BONDS
DEBT CAPITAL
• refers to funds that are borrowed and must be repaid
at a later date. While debt allows a company to leverage
a small amount of money into a much greater sum,
lenders typically require the payment of interest in
return for the privilege.
• corporate debt can be either secured or unsecured.
DEBT CAPITAL:
SECURED
• are backed by assets owned by the issuing corporation. If
the issuer of the secured debt, (the corporation) goes
bankrupt, the trustee will take possession of the assets and
liquidate them on the bondholders' behalf. If the company
defaults the bondholders will be repaid from the proceeds
from the sale of the company's assets, which secure the
payments.
DEBT CAPITAL:
TYPES OF SECURED CORPORATE BONDS
• Mortgage bonds are secured by a first or second mortgage on
real property.
• Equipment trust certificates are secured by a specific piece of
equipment. For example an Airplane, or Railroad cars
• Collateral trust bonds are secured by the securities of another
corporation, which is usually affiliated with the issuer in some way.
DEBT CAPITAL:
UNSECURED
• also known as debentures, are secured only by the
corporation's good faith and credit, and not by a specific
asset. If the company defaults, the bondholders will have
the same claim on the company's assets as any other
general creditor. Though secured bondholders will be paid
before unsecured bondholders, owners of stock will be
paid after unsecured bondholders.
DEBT CAPITAL:
TYPES OF UNSECURED CORPORATE BONDS
• High-Yield (Junk) Bonds: Unsecured corporate bonds that are not
considered investment grade by credit rating companies - those rated BBB or
below by Standard & Poor's (S&P) or Baa or below by Moody's, for example -
are called high-yield bonds, or junk bonds. The financial profile of a company
issuing high-yield bonds will raise questions among bond analysts about the
company's ability to return principal and make timely interest payments to
bondholders. To justify the higher degree of risk that an investor must assume
when lending money to such a corporation, junk bonds must pay higher yields
to investors than bonds with investment-grade credit ratings.
DEBT CAPITAL:
TYPES OF UNSECURED CORPORATE BONDS
• Convertible Bonds: A corporation may issue convertible
bonds, which allow investors to convert a bond into shares of
the company's common stock at a predetermined ratio. A
corporation will issue these bonds to borrow money at a lower
rate of interest than the company would pay on an equivalent
non-convertible bond issue. The assumption is that investors
will forgo a bit of interest on exchange for the conversion
feature.
BONDS
• is a debt security issued by the corporation.
• is a debt securities where you lend money to an issuer
in exchange for interest payments and the future
repayment of the bond’s face value.
BONDS
• Pros: Can be virtually risk-free (or low-risk);
predictable income; better returns compared with
other short-term investments; some bonds are tax
exempt.
• Cons: Potential for default; selling before maturity can
result in a loss.
BONDS:
OTHER TYPES OF BONDS

• Zero-Coupon Bonds: are debt securities issued at a

deep discount from par, with the difference between
the discount and the face value paying out at maturity.
These bonds do not make regular interest, or coupon,
payments.
FINANCIAL CONCEPTS
AND TOOLS
FINANCIAL CONCEPTS AND TOOLS
• CAPITAL
• FINANCIAL STATEMENTS
• FINANCIAL ANALYSIS
• TIME VALUE FOR MONEY
FINANCIAL STATEMENTS
• are compact reports that summarize the financial
position of a firm as of a given date, or the result of
financial operation over a given period.
FINANCIAL STATEMENTS
• Balance sheet
• Income statement
• Budget
BALANCE SHEET
• Liabilities
• shows the financial position
• Accounts Payable
of the firm as of the specified • Loans and Notes Payable
date, indicated by the • Advances from customers
summary of its assets, • Accrued Expenses
• Mortgage Expenses
liabilities and owner’s equity. • Bonds Payable
• Assets • Equity
• Current Assets • Capital Stock
• Trade Investments • Common
• Fixed Assets • Preferred
• Intangible Assets • Paid-in Capital
INCOME STATEMENT
• shows the result of the financial • Revenues
operations over a given period. • Expenses
From point of time, the statement is • Cost of Goods Manufactured and Sold
exclusive it covers only the specific • Operating Expenses

period, the presentation utilizes • Other Expenses

simple procedure, the gross income • Other Income

from all sources less operating • Net Profit or Loss
expenses for all purposes equals net
profit (or net loss).
BUDGET
• is defined as an estimate of income and expenditures
for a future period.

• Sales Budget
• Materials and Purchases Budget
• Production Budget
PERSONS INTERESTED IN THE
FINANCIAL STATEMENTS
• Owners
• Management
• Creditors
• Government
• Prospective Investors
FINANCIAL ANALYSIS
• the process of evaluating businesses, projects, budgets
and other finance-related entities to determine their
performance and suitability. Typically, financial analysis is
used to analyze whether an entity is stable, solvent,
liquid or profitable enough to warrant a monetary
investment.
FINANCIAL ANALYSIS
• Ratio Analysis
• Liquidity Ratios
• Profitability Ratios
• Break-even Analysis
RATIO ANALYSIS
• A technique of financial analysis which interprets financial data on the basis of
the relationship of financial values compared with established standards. A ratio
is defined as the “quotient of two mathematical expressions”.
• Ex: The financial value of the current assets of Manila Corporation is ₱ 4 million
and the financial value of its current liabilities is ₱ 2.5 million. The analysis now
can draw a relationship between this two is called current ratio.
LIQUIDITY RATIOS
• This measures the firm’s ability to meet current
obligations as they fall due, liquidity refers to the cash
or the availability of the means of the payment.
PROFITABILITY RATIOS
• are designed to measures the success of the firm in generating profit. The
net income after taxes compared with other variables to test the firm’s
profit-making ability.
• Ex: To illustrate: atlas consolidated reported a net income after tax of ₱
81,150,900 in 1977. It also reported common stock outstanding at ₱
836,108,000 at par value of ₱ 10 per share. Number of common shares
outstanding = ₱ 836,108,000/10 per share = 83,610,800 shares.
BREAK-EVEN ANALYSIS
• a technique of determining the level of output where the firm
will have revenues equal to the sum of fixed and variable costs.
Fixed costs or expenditures which remain the same up to a
certain volume of production. Variable costs are expenses that
change in direct proportion to changes in output. Break-even
point is that volume of output where the firm will have neither
profit nor loss.
BREAK-EVEN ANALYSIS
Example:
TIME VALUE FOR MONEY
• the value of money or its purchasing power may change over a
period of time. It’s called “inflation risk”. When prices go up, the
purchasing power of the monetary unit (the peso) goes down.
The other is that money has value over a period of time, if
invested, it earns interest, therefore its value increases.

• Two mathematical technique in relation to the time value of

money are compounding and discounting.
TIME VALUE FOR MONEY:
COMPOUNDING

• a technique in determining the future value of a given amount

of money invested today at a given interest rate over a given
period of time, the interest is added to the principal at the end
of the period to compute for the succeeding period.
TIME VALUE FOR MONEY:
COMPOUNDING

Example:
TIME VALUE FOR MONEY:
DISCOUNTING

• a technique of determining the present value of sum of

money that will be received at a definite future time at
a given rate of interest.
TIME VALUE FOR MONEY:
DISCOUNTING

Example:
TIME VALUE FOR MONEY:
ANNUITY

• is a series of monetary value payments of a specific amounts

over a given number of years.
• Compounded annuity the compound value of an annuity is
the sum of the compound values of each payments, compound
value formula;
TIME VALUE FOR MONEY:
ANNUITY

• Compounded annuity example:

TIME VALUE FOR MONEY:
ANNUITY

• Discounted annuity the present value of an annuity is the sum

of the present value of each payment discounted over the
appropriate number of years.
TIME VALUE FOR MONEY:
PERIODIC PAYMENTS

• amortization or installment payments, periodic

accumulate to provide a target amount in the future.