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Chapter 9.pdf

7 Pages

Management (MGT)
Course Code
Tarun Dewan

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Chapter 9 - Securities and Investments What Are "Shares"? A share is a piece of paper. It is evidence of part ownership in a corporation. Here's a share in the Walt Disney Company Here's a share in Microsoft Why Do Businesses Sell Shares? Businesses can be expensive to start Entrepreneurs need lots of $$$ Selling shares in the business increases $$$ available Entrepreneurs need interested and committed co-owners Why Do Investors Buy Shares? Because they might have some spare cash Because they want to park it somewhere Because owning a share confers rights and benefits of owning a business: Right to vote at annual meetings of shareholders Right to share in profits of business. (Typically, dividends) Gains to value of shares (caused by the growth) Investment Banks Advise entrepreneurs on the timing, pricing and marketing of shares to investors. Collect, package and distribute funds from "investors" to companies. Through stock brokers: sell shares to investors. Who Own Shares? Anyone who wants to. Because they represent part ownership in a corporation. But - there are risks: the business could fail Primary Securities Market Market for buying shares when first sold by corporations. Corporations helped by investment bankers and securities dealers. Determine number, price, timing and distribution method at which to sell shares. Secondary securities market: Subsequent sales of shares, between members of public. Example: The Royal Bank of Canada There are 10s of thousands of shareholders (owners) of the Royal Bank, in Canada and around the world. There are c. 1.4 billion shares outstanding Approximately 5 - 10 million shares change hands every day. Professor Bovaird owns 212 shares. Thus: Prof Bovaird owns 212/1,400,000,000 of the Royal Bank. Royal Bank in 2008: Revenues: $37.5 billion Profits or Earnings: $4.55 billion Earnings per Share: $4.55 billion / 1.4 billion shares = $3.19 Profit or Earnings is NOT the Same as Cash Profit is NOT the same as large chests of gold sitting in a safe. Profit is NOT the same as cash. A company makes a small profit every time i
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