Stock Holder
Rights
Rights
Q: What document specifies the relationship between a corporation and the state?
Certificate of incorporation / Charter
Q: Dividends divided by earnings equals what ratio?
Payout ratio
Q: Does a stock split change total equity?
No
Current assets divided by current liabilities?
Current ratio
Q: The statement of cash flows shows what three activities?
A: Operating, Investing, Financing
Q: What type of voting allows minority shareholders a better chance to elect a director?
Cumulative voting
Q: What is 1 – payout ratio?
Retention ratio
Q: A 2-for-1 split turns an $80 stock into what price?
$40
Q: What ratio measures short-term liquidity excluding inventory?
Quick ratio
Q: A decrease in an asset is what?
A: Cash inflow
Q: What right allows shareholders to maintain their ownership percentage when new shares are issued?
Preemptive rights
True or False: If you reinvest your dividends instead of receiving cash, you avoid paying federal income tax on them.
False. As of 2019, reinvested dividends are still subject to federal income tax.
Q: What is one major effect of stock repurchases?
Increase earnings per share, and/or increase in the price of the stock.
Sales divided by total assets?
Total asset turnover
Q: An increase in a liability is what?
Cash inflow
Q: Who elects the board of directors?
Stockholders
Q: Name the four key dividend dates.
Declaration date, Date of record, Ex-dividend date, Distribution date
In the event of liquidation, who has priority on the firm’s assets: common or preferred stockholders?
Preferred stockholders.
Earnings after taxes divided by equity?
Return on Equity (ROE)
Q: An increase in an asset is what?
Cash outflow
Q: Why might cumulative voting benefit small investors?
By banding together and casting all their votes for a specific candidate, the minority may be able to win a seat. Although this technique cannot be used to win a majority, it does offer the opportunity for representation that is not possible through the traditional method of distributing votes.
Q: What is a Dividend Reinvestment Plan (DRIP)?
Dividends automatically used to buy more shares.
Q: Why might companies prefer repurchases over dividends?
Capital gains taxes may be lower / flexibility
Earnings = 200
Equity = 1000
ROE?
Earning/Equity
200/1000=0.2
ROE=20%
Q: Why do investors care about cash flow?
Measures the ability to generate cash and pay obligations.