Interesting Information

Week 3 summary

In this week I learned some interesting information about stocks that I did not know before. I was unaware of the difference between common stock and preferred stocks. I learned that the preferred stocks are to be paid before common when dividends are paid. The preferred shareholders are also entitled to payment first if the company must liquidate their assets. Corporations started to issue preferred stocks as a way to raise capital without the corporation having to borrow money by issuing bonds.

I also learned that a company can buy back its own stock as a way to invest in themselves and increase shareholders values. It must be an appropriate time for the company to do this in order for it to truly be a good idea and the shareholders must be the main concern. Buying back stocks can also be a veil of sorts to cover a poor financial ratio. It is important to pay attention, if the company is in trouble it would want to try to lower the outstanding shares available and raise the value of its shareholders.

On top of learning about corporations being able to buy back its own stock I also learned what effects the holding of treasury stock has on a company. It really does not change the net income as long as treasury shares are kept there, total assets will decrease because open shares will be gone resulting in a decrease of assets. The treasury stock itself is an equity account that is known as the contra stockholders account.