RSM332H1 Chapter Notes - Chapter 7: Financial Statement, Market Price, Business Cycle
Document Summary
Equity securities represent ownership claims on businesses with residual claims to earnings after tax and to assets upon dissolution, and the prospect for participation in the growth and profitability of the business. Equity securities can be valued based on approaches using the present value of expected future dividends (dividend discount models) or relative valuation models. Equity securities include preferred and common shares, and may pay dividends from after-tax earnings at the discretion of the board of directors. Unlike bonds, which are most often finite in life, equities like corporations are assumed to have an infinite life so long as the underlying corporation is a going concern. According to the canada business corporations act (cbca) corporations must have at least one share class with the following rights: Rights to residual earnings after-tax and all legal obligations to other claimants have been satisfied. Rights to residual assets upon dissolution or liquidation.
