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Equity InvestmentsModule 4 of 6

Overview of Equity Securities

5

Concepts

3

Formulas

0

Decisions

2

Quiz Questions

Key Concepts

5 concepts covered in this module.

Common Shares

Residual claim, voting rights, dividends not guaranteed. Represents ownership. Risk: last in liquidation.

Preference Shares

Fixed dividend, priority over common. Cumulative: missed dividends accumulate. Participating: share in excess earnings.

Depository Receipts (DRs)

ADRs: US-listed foreign stocks. GDRs: listed outside the company's home country. Sponsored vs unsponsored.

Private Equity

Venture capital (early-stage), Leveraged buyouts, Growth equity. Less liquid, longer time horizon.

Return Components

Capital gain (price appreciation) + Dividend yield. Total return = (P1 - P0 + D) / P0.

Formulas

3 essential formulas for this module.

Book Value per Share

BVPS = (Total Equity - Preferred Equity) / Common Shares Outstanding

Where: Accounting value of equity per share

ROE

ROE = Net Income / Average Shareholders' Equity

Where: Return generated on shareholders' investment

Cost of Equity (DDM)

re = (D1/P0) + g

Where: Dividend yield + expected growth rate

Mind Map

Visual overview of how concepts connect in this module.

Equity Securities
Common Stock
Voting rights
Residual claim
Dividends discretionary
Capital appreciation
Preferred Stock
Fixed dividend
Priority over common
Cumulative/participating
Less voting rights
International
ADRs/GDRs
Sponsored vs unsponsored
Currency risk
Dual listing
Returns
Capital gain
Dividend yield
Total return
ROE

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