December 27th, 2008 by admin
Treasury Stock is defined thus: “Stock reacquired by a corporation to be retired or resold to the public. It is issued but not outstanding, and is not taken into consideration when calculating earnings per share or dividends, or for voting purposes.”
These are shares bought back by the issuing company, thus reducing the amount of the outstanding shares in the open market, including insiders’ holdings. Such repurchases are done with some objectives. Firstly, as a tax-efficient method to put cash into shareholder’s and thus ’save′ the money that the company might have to pay as dividends. Secondly, when the company feels that the stocks are undervalued in the open market. Thirdly, this is an incentive compensation plan for employees. Instead of cash bonus, the employees will receive assets which are likely to grow faster than savings/fixed deposits in a bank account. And finally, a clever devise against the takeover threat, to protect the company.
These shares have certain limitations:
No dividend is payable on treasury stocks and they have no voting rights. The total amount can not exceed the maximum proportion of total capitalization, as per the laws of the country, governing such matters. On repurchasing the shares, they may be held for reissue or cancelled. When not cancelled, they are referred to as treasury shares. In reality, a repurchased share is company’s own share that has been bought back by the company under special circumstances, after being fully subscribed and paid.
The possession of these shares does not confer any special rights to the company such as right to vote, pre-emptive rights as a shareholder, the benefit of cash dividends etc. In case of liquidation of the company, no proceeds are apportioned. In short, it is as good as un-issued capital and hence it is not classified on the balance sheet. To be classified as an asset, it needs to have probable economic benefits. The ordinary share capital stands reduced by the amount equivalent to the aggregate of such shares.
In a just and efficient market, buying back its own share to convert them into such shares has no effect on the share price. For example, if the price of one share of the company is $100, and if the company buys back 100 shares for $10000, its cash holdings stands reduced by $10000 but 100 less shares are outstanding as well, and the value per share remain unchanged. But this could result in change of certain financial ratios, such as earnings per share stands increased. But the value per share remains unchanged, as the market risk increases by the same amount.
In USA, buybacks are covered by certain laws. Accordingly, the company that intends to repurchase the share should not use more than one broker to acquire shares per each day. A repurchase may not be the first trade of the day nor can it be made in the last ten minutes of the trading day. A repurchase price may not be bid at a price higher than the highest independent bid or last price of the last trade. Repurchases per day may not exceed 25% of the average daily volume of the previous 4 calendar weeks. This restriction is however, not applicable to block purchases not effected by a broker-dealer.
Some companies retain shares o use later. These are known as treasury shares. The company may release such shares in to the market, to enable them to acquire money for a project, or research and expansion. There are many companies that hold a good chunk of the shares in this category.
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November 18th, 2008 by admin
Well perfect momentum stocks are not quite as rare but I do feel those too happen when three distinct things happen in the stock market.
What are they?
1) Stock market stops going down and starts going up. If investors relied on this one rule they would do ok. You cannot beat the market. Even great stocks will go down (not much) or sideways in bear markets.
2) The stock technically looks great. Technical action does not mean Moving averages, MACD crossovers, and a whole host of other lagging and complete Smoke screen . It simply means price and volume.
3) Fundamentally the stock fits the rules. A great story, fantastic small companies at the right time fit this criteria. What “funny mentals” should you be looking at? Well what I look at are Price to Sales ratio, earning but whilst poast earnings are great to start with it’s the potentialfuture earnings that hold the key, debt ratio, insider holding and institutional holdings. To name but a few.
Well the stock I have recommended to my list fits 2 of the three. And possibly all three IF, IF, the market rallies from here. Which right now it isn′t so I am not going to say this is perfect timing here.
It’s a small cap stock that has produced stellar profits and most importantly the future looks even better. It’s capitalizing on a huge trend affecting the whole of the planet now (most of my great momentum stocks have a great story behind them) Remember what I am always hoping for is a 10 bagger. I do not get many but that’s what I want to try and find. If the stock looks like like it “might gain″ 50%,100% at a push I am not interested in it.
You can let me do the groundwork to finding and in effect managing these trades for you. Most importantly is when to exit. Too early and you miss the move. Too late and you lose as well. It’s not easy but I have nailed enough great monster momentum stocks to see how it works.
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January 5th, 2008 by admin
On the surface the stock market can seem a cold place - investors snap up stocks and dump them just as quickly if they believe a downturn is near. But, there is a lot more to stocks than the daily highs and lows. As an investor you give companies the capital they need to realize their goals and aspirations. Being a stockholder means you can have influence in a company, but the type of responsibility and influence you have depends on the type of stocks you have. Being aware of these benefits of different stock types can help you decide on what the best investment choice is for you.
Stocks
Generally speaking, stocks represent ownership of a company. When you purchase a share of a company, or a stock, the firm will typically issue a stock certificate as proof of your ownership. Each type of stock, even if it falls under a certain category, can have its own defined benefits or terms as defined by the issuing company. It’s always good to have an understanding of the stock type prior to investing.
Common Stock
This is the most frequently issued type of stock. It is also the most risky type of stock. When a company goes bankrupt, common stockholders are the last to receive compensation. With this risk, comes the greatest opportunity for long-term investment. As the company yields a profit, common stock holders are entitled to dividends corresponding with the quantity of shares they own. The investors who own common stock in a company are the company’s shareholders. They traditionally receive one vote per share to elect the members of the board. However, not all common stock comes with voting rights. It is possible for stocks to be issued without including voting privileges.
Preferred Stock
What makes preferred stock so poignantly different from common stock is that the shareholders of preferred stock are usually legally guaranteed to receive a specified amount of dividend payments before all other shareholders on a fixed schedule for the duration of their ownership of the stock. In other words, they are guaranteed a certain return on their investment - no more, and no less - regardless of the state of the business. This reduces the risk involved with the investment, but it also puts a cap on the potential earnings from the investment. Additionally, preferred stock does not usually have the voting privileges associated with common stock. These matters are all clearly stated in the stock′s Certificate of Designation. Sometimes it is also referred to as “convertible preferred stock″. This means that there are provisions for the preferred shares to be converted into common stock. Usually, there is a time-frame and quantity established in the terms.
Growth Stock
When mentioning a “growth stock″, investors are referring to stocks belonging to companies with an anticipated return on equity (also called ROE) of 15 percent or more. The ROE is determined by dividing a company’s net income by their total equity. These firms are expected to appreciate in their value quickly over time, and as they grow, yield decent returns.
Initial Public Offering (IPO) Stock
The first time a company sells shares to be publicly traded is called the company’s IPO, or Initial Public Offering. At this crucial time for the company, there may be stock options available during the IPO that will not be available months later. A successful IPO is often thought to indicate a positive outlook for the company, although this is not always the case.
Penny Stock
This type of stock typically sells for less than five dollars on the market. Penny stocks are high risk stocks for businesses that are struggling to survive or that are still in their early stages. Most of these stocks tend not to fare to well, but on occasion they can, and do, surprise investors.
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