TYPES OF STOCKS

• Company can issue two types of stocks, namely

common stock and preferred stock.
• There are many differences between preferred and
common stock. The main difference is that
preferred stock usually do not give shareholders
voting rights, while common stock does, usually at
one vote per share owned. Many investors know
quite a bit about common stock and little about the
preferred variety.
• Both types of stock represent a piece of ownership
in a company, and both are tools investors can use
to try to profit from the future successes of the
business
 COMMON STOCK / ORDINARY SHARES

• Common stock represents shares of

ownership in a corporation and the type of
stock in which most people invest.

• When people talk about stocks they are

usually referring to common stock. In fact, the
great majority of stock is issued is in this form
FEATURES OF COMMON STOCK /
ORDINARY SHARES
1.The right to receive dividends after the claim of the preferred
stockholders are met

2. The preemptive right or the right to buy new shares of stock

before they can be offered to the public.

3. Voting right and right to participate in the management of the

firm
4. The right to share in the distribution of assets after all the
preferential claims are met.

5. The right to receive periodic financial reports regarding the firm.

6. The receipt of a stock certificate which evidences pert ownership

of the firm. The stock certificate may then be sold by the holder to
others in the secondary securities market.
 
ADVANTAGES OF ISSUING COMMON STOCK /
ORDINARY SHARE TO RAISEMONEY FOR THE
COMPANY
1. Credit rating improvement – increased
liquidity, financial ratios in relation to
financial leverage will increase.
2. Dividend declaration
3. Maturity date
4. Authority to repurchase

5. Increase of net Income

DISADVANTAGES OF ISSUING
COMMON STOCK
1. The eps of the company will be diluted
2. The stockholder’s interest in the firm will decrease
unless they exercise their preemptive right
3. The dividends declared are non tax decductible.
Unlike in the case of bonds, the interest expense is
deducted from the income
4. The retained earnings declared as dividends will
be distributed to a larger number of stockholders
5. The floatation costs associated with a common
stock issue are higher compared to tgose related to
preferred stock issuance and debt financing.
 PREFERRED STOCK /
PREFERRENCE SHARES
PREFERRED STOCK / PREFERRENCE SHARES

• Preferred stock represents some degree of ownership in

a company but usually doesn't come with the same
voting rights. (This may vary depending on the company.)
• With preferred shares investors are usually guaranteed a
fixed dividend forever. This is different than common
stock, which has variable dividends that are never
guaranteed.
• Another advantage is that in the event of liquidation
preferred shareholders are paid off before the common
shareholder (but still after debt holders).
• Preferred stock may also be callable, meaning
that the company has the option to purchase
the shares from shareholders at anytime for
any reason (usually for a premium).
• Some people consider preferred stock to be
more like debt than equity. A good way to
think of these kinds of shares is to see them as
being in between bonds and common shares.
 FEATURES OF PREFERRED
STOCK / PREFERRENCE SHARE
1. A preferred stockholder has preferential rights over
the dividends.
• Cumulative preference share
• Non cumulative preference share
• Participating preference share
• Non participating preference share
2. Preferred stockholder has no voting rights. He/she
cannot participate in most management – related issues.
3. In case of corporate liquidation, the preferred
stockholders have a preferential claim on the corporate
assets over the common stockholders.
4. A preferred stock may have call a provision.
5. preferred stock may have a convertible feature.
6. Issuance of preferred stocks does not dilute the
ownership interest of the common stockholders.
However, it affects the computation of the
earnings per share since the dividend requirement
for a preferred share has to be deducted first from
the net income.
7. Preferred dividends are not tax deductible.
8. The price fluctuation of preferred stock is
greater than that of bonds already due because
preferred stocks have no maturity.