Financial Planning How can I grow my? I need more equipment, supplies, materials to make products, employees, etc. 1
What are the Pro and Cons? BANK LOANS Pay back principal plus interest What are the Pro and Cons? CORPORATE BOND Pay back principal plus interest 2
What are the Pro and Cons? BANK LOANS Pay back principal plus interest CORPORATE BOND Pay back principal plus interest What are the Pro and Cons? INITIAL STOCK ISSUE Give others a share of the assets AND possibly a share of profits 3
What are the Pro and Cons? INITIAL STOCK ISSUE Give others a share of the assets AND possibly a share of profits NEW STOCK ISSUE STOCK OFFERING (PRIMARY MARKET) Company adds ownership (equity) Stock is offered for sale by the company. Increases capital (money) The very first time a company sells stock it is called the initial public offering or IPO NORMAL TRADING (SECONDARY MARKET) Individual owner (stockholder) wants to sell to gain profit or avoid loss The sale is actually a trade between buyer/seller. The price of the trade is listed as a stock quote The company does NOT receive any money from a trade. 4
Stockholders VOTE Board of Directors HIRE Management Chief Executive Officer (CEO) Finance Human Resources Production CORPORATION 5
Company needs money to grow The Company sells pieces of the with a STOCK OFFERING Company uses the money to grow Investors repaid by dividend OR selling their share to someone else CORPORATION Piece of Ownership Sold to another person (TRADE) CORPORATION 6
Investor wants to cash out Other investors want to buy in Seller and Buyer agree upon a price The share is sold. The company does not get any money. CORPORATION Primary Market New Issue of Stock to raise funds Lenders (Savers) Households Corporations Government Intermediaries Banks Insurance Co. Brokers Mutual Funds Pension Funds Financial Markets Money Markets Capital Markets $ Borrowers (Spenders) Households Corporations Government Secondary Market Buy/Sell of Securities already issued Scott R. Dixon (2010) 7
You gain Possible Dividend (varies with company profit) Voting Rights You risk No guarantee of payment No guarantee of growth Potential loss of investment 8
You gain Guaranteed, but lower, Dividend Paid before common stock holders if liquidated You risk No voting rights No guarantee of payment No guarantee of growth Potential loss of investment P/E ratio Company Leadership Laws Higher = high price to pay for earnings Over 25 is risky! Capitalization Outstanding Shares * Price Products Supply vs. Demand Earnings Income Statement! Stock Price Natural or other disasters 9
52 week Stock Div Yld P/E Sales Previous Last Change High Low % Ratio 100s High Low 63.88 35.31 XYZ 1.76 3.9 15 15584 45.73 42.20 44.58-0.07 52 Week Highest or Lowest price paid within last 52 weeks Stock Ticker Symbol Common stock unless noted Div Amount of dividend payment made (profit given per share) This is on an annual basis 52 week Stock Div Yld P/E Sales Previous Last Change High Low % Ratio 100s High Low 63.88 35.31 XYZ 1.76 3.9 15 15584 45.73 42.20 44.58-0.07 Yield The yield, also known as rate of return on a stockholders investment Dividend/Price This stocks yield is 3.9% Price-Earnings Ratio Stock PrIce / EPS stock EPS (Earnings Per Share) is reported at the end of the income statement Sales (100s) The total amount of stock traded on the previous day. 1,558,400 shares were traded during the previous day in the SECONDARY market (unless noted) 10
52 week Stock Div Yld P/E Sales Previous Last Change High Low % Ratio 100s High Low 63.88 35.31 XYZ 1.76 3.9 15 15584 45.73 42.20 44.58-0.07 Previous The highest and lowest price paid on the previous day Large changes usually represent some significant change (good or bad) Last The final price paid on the previous day Compare to the high/low to help understand the overall opinion for the day Change The difference between the last trade and its previous day 11