BU111 Study Guide - Midterm Guide: Debenture, Swot Analysis

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16 Oct 2011

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Important Lecture Notes
Business Success Factors
- Achieve financial performance
- Meeting customer needs
- Providing quality products and services
- Encouraging innovation and creativity
- Gain employee commitment
Stakeholders individuals/groups who depend on a company for personal goals.
Primary Owners, customers, employees
Secondary Suppliers, Creditors, Communities, Government, Society
If unclear about success factors, and direction, the firm can potentially go bankrupt.
Management’s Primary Objective Devise and implement strategies that will allow the organization to
achieve critical success factors.
Bonds/Debentures Large corporations use this to finance operations, and securities.
- IOU kind of note from the government.
ABC 7 of 30 - 7% Interest Date of Maturity, 2030. We always assume bonds are 20 years in BU111.
- First in line when companies fall apart, and have to liquidate their assets.
o Order of Liquidation
Secured Creditors (Banks, Bondholders)
Preferred Creditors (Gov)
Unsecured Creditors (Suppliers, Employees, Debenture Holders)
Preferred Stockholders
Common Stockholders
- Must pay in full before moving onto the next group.
- Mortgage bonds real property land building
- Collateral Trust bond Stocks and bonds
- Equipment Trust Bond machinery and equipment
- Debenture no collateral, bondholders are unsecured
Preferred Shares
- Hybrid between bonds, common stocks.
- Fixed annual rate of dividends
- No date of final maturity, can sell anytime you want
- Liquidation Rights (All debts to Preferred Stocks must be paid in full FIRST)
- Features of Preferred Shares
o Cumulative Feature (Interest add up throughout the years)
o Call Feature (Allows the issuer to buy back)
o Conversion Feature (Investors can convert preferred shares to common shares)
o Participating Feature (Additional profits if extra dividends are left)
Bid and Ask Price
- Ask is the lowest per share anyone is willing to sell
- Bid is the highest per share anyone is willing to buy
Buying on Margin
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