25300 Lecture 4: Lecture 4 - Equity and Valuation
Document Summary
Equity and valuation: difference between debt and equity. Equity has permanent risk capital (no assurance investors will profit) Shareholders have a residual claim to income (in liquidation) If a company defaults, creditors get paid first (firm claim to assets) Dividends: represent share of profits and are not tax deducible. Shareholder rights: to receive dividends, voting, asset, rights issue. Raising capital: primary issue (ipo) rights issue, private placement. Eps = net profit (after tax) / no. of ordinary shares: various types of equity securities. Preference shares: various types of hybrid securities (combine elements of debt. Convertible bond: debt can be swapped into equity before maturity. Preference shares: get paid before ordinary shareholders (less riskier) Cumulative: any fixed dividend not paid is carried forward. Hybrid security features of both bonds and ordinary equity. Primary issue sale of new shares sold below estimated. Incentive to buy the shares if they"re worth more than.
