STOCKS AND SHARES EQUITY FINANCE

EQUITY/EQUITIES  common stock (the US)  ordinary shares (the UK)

FORMING LIMITED COMPANIES (COMPANIES GO PUBLIC) 1. legal entity separate from its owners 2. liable for the amount of capital invested 3. public limited company/listed company apply to: - over-the-counter markets - major stock exchanges

GOING PUBLIC ADVICE FROM AN INVESTMENT BANK HOW MANY SHARES AND AT WHAT PRICE INDEPENDENT ACCOUNTANTS PRODUCE A DUE DILIGENCE REPORT PROSPECTUS ABOUT ITS FINANCIAL POSITION AND THE RESULTS FLOTATION OR IPO INVESTMENT BANK UNDERWRITES THE STOCK ISSUE

COMPANIES ISSUE SHARES raise capital expand the business

INITIAL PUBLIC OFFERING IPO (the US) flotation (the UK)  investment bank underwrites the issue (guarantees to find buyers and purchase all the securities if there are not enough other buyers)

IPO 1.IPO (quick and easy profit)  shares offered through advertising  issue of prospectus  application forms a)fixed price b)tender offer – investors bid for shares

SHAREHOLDERS COMPANY LENDERS Share capital Loans Dividends Repayments and interest

STOCK EXCHANGE the primary market (issuing shares) the secondary market (trading shares)

a) computerized trading systems b) market makers – traders in stocks (quote bid - buying prices offer - selling prices)

STOCK INDEXES  measure stock markets  show changes in the average prices of a selected group of important stocks  the Footsie – the FT 100 share Index  the Dow Jones – 30 large companies

BULL MARKET  A period during which most stocks and the stock index are rising

BEAR MARKET  A period during which most stocks and the stock index are falling

NOMINAL VALUE OF SHARES (FACE OR PAR VALUE) a)nominal value – the price written on it b)the current market value (rarely the same)

PEOPLE BUY SHARES 1.part of the ownership 2.proportion of a company’s profits as a dividend 3. make a capital gain by selling their shares at a higher price

PROFITS  pay annual dividends  keep the profits the value of the stocks rises

TRUE OR FALSE? 1.A company can only be floated once.___ 2.Banks underwrite share issues when they want to buy the shares. _____ 3.It is easier for a company to be quoted on an unlisted securities market than on a major stock exchange. ________ 4.Unlisted companies do not publish annual reports. ________ 5.The market price of a share is never the same as its nominal value. _______ 6. If a company issues new shares, it has to offer them to existing shareholders at a reduced price.

ADD APPROPRIATE WORDS: 1. Offering shares to the public for the first time is called a company. 2. A company offering shares usually uses a merchant bank to the issue. 3. The major British companies are on the London Stock Exchange. 4. The value written on a share is its

MAKE WORD COMBINATIONS: 1.go _________________a) an issue 2.offer _______________b) a prospectus 3.produce _____________c) public 4.underwrite ___________d) shares USE THE WORD COMBINATIONS TO USE THE WORD COMBINATIONS TO COMPLETE THE SENTENCES: We are planning to ____________and that is why we’re ______________50,000 ______for sale. An agency has ______________for us, and the MWE investment bank is ___________________the _________.

What is a stock? What does a stockholder have a claim on? When does a share increase in value?