Video Transcript: The Equities Securities Market

Hello, welcome. We are going to be discussing the equity securities market.  Equity securities, common stock and shares of corporate ownership. So  common stock represent ownership into the firm that you're investing in if you're  buying their stock. So common stock is also known as equities and equity  securities. Each share represents a portion of ownership in the company, and a  vote on corporate governance matters. Common stock is issued by corporations to raise money so they can go into the capital markets. If they need a capital  infusion, they need equity, they don't want to go to the debt markets. They may  turn to issuing common stock when a corporation issues stock for the first time,  it is known as an official public offering or an IPO market value of common stock is based on the expected future earnings of the company. What are the growth  projections moving forward, and as they're projected out when the time comes  to issue your earnings, are you beating those revenue projections, or are you  not meeting the expectation? Common stock that is not publicly traded is  referred to as closely held, and the owners are usually directly involved in the  company's management, so insider investing those those shares, more than  likely, will not be sold off until the decline phase of the organization, potentially  equity securities corporations board of directors and management. How did  that? How do they directly affect the equity security side? So corporations are  controlled by a board of Board of Directors. The operations of the corporation  are run by managers who are selected by the board of directors. So the board of directors are selecting the upper senior management, CEO, CFO CIO, things  like that. The Board of Directors oversee the performance of these managers.  Remember, the board of directors has the shareholders interest in mind, first,  over the upper senior level management, because the shareholders are the  owners of the company. Publicly traded companies are required to hold an  annual meeting with the board of directors, this is to discuss how the company is going to move forward. What do the shareholders desire, as far as a dividend,  return, things of that nature. Members who are not able to attend the annual  meeting can vote via proxy. The proxy gives another shareholder the vote on  their behalf as the shareholder directs them to vote. So I can, if I'm a  shareholder, I can't make the meeting, and it's important vote. I can have  somebody that's also a shareholder sit in with my voting shares and my voting  rights and vote how I want them to vote, or they can vote their conscience.  However, I give them direction to do so. So let's look at a mark stock market  listing, right? So for instance, these are large cap stocks. So you can see, let's  discuss the dividend yield. So the dividend yield is what the shareholders are  getting in return as a dividend payment typically paid out quarterly. So you can  see that Chesapeake Energy has a 2.03% dividend yield. Now a higher dividend yield will represent greater risk in a company. So if they have a high dividend  yield, like American Eagle Outfitters, 3.79% they have got to give investors a  reason to come in and own shares, so they'll give a higher dividend yield, so it'll 

be more attractive to investors, but American Eagle shares may be a little more  risky as far as per share growth annually. So what I'm saying is the price of a  stock might not go up because American Eagle is a retail company that bricks  and mortar retail is not doing well, so a lot of times, these retailers will have to  offer a greater dividend yield. So let's look at PE ratio. So this is the price to  earnings ratio. So the price of my stock divided by the earnings gives me this  ratio. So you can see Adobe has a very high price to earnings ratio, 149.06 that  means. That their earnings was 149 times the stock price, right? So we could  say that Adobe is undervalued because their PE ratio is so high, so their  earnings is divided by their price, which gives you 149 times their price is below  their earnings. Let's talk about market cap. Okay, market cap represents the  number of shares available in the market, so a firm will put out, let's say, 10  million shares, and that's the entire share float, and their price is $10 $10 stock  price times 10 million shares gives you their market cap. So $1 billion market  cap. Now this is the price you can see last price Oasis petroleum, 12.33, this is  the price that it closed at on the last day of the market being open. They saw a  one point $1.28 cent appreciation in their stock price, which was a 11.58  percentage change. Now you can look here the year to date percentage  change. It last traded for 12.33, but this was not so from the high or from what  the stock price was last year, exactly, year to date, it is down 73.7% so the stock price has been declining pretty rapidly. So the 52 week range, you can see for  Oasis petroleum, the high in the 52 weeks. That's one year range, 58.09 was  the high, the low, 10.64 for a 72% decrease. So Oasis petroleum is not  performing well at all. So let's discuss preferred stock. Preferred stock shares  are non voting shares of stock that, like bonds, usually receive a steady stream  of dividend payments each year. So it's not like common stock, where you have  a 3.5% dividend and it may or may not get paid out. Preferred stock is issued  and they receive a 10% payment of what the value of that stock is every year,  no matter what, until the preferred stock is sold. Preferred stock is also similar to bonds, as it does not give the shareholder voting power on issues voted on by  owners, so no voting rights with preferred stock owners. Dividends of preferred  stock are cumulative. Cumulative means that they are going to be paid out all at  once, right? So they're not going to be paid out monthly. They'll be paid out  annually. Unpaid dividends build up over time and must be paid in full before any dividends can be paid on common stock. So the dividends on the preferred  stock, they are paid before dividends on common stock. Dividends for preferred  stock are not tax deductible like they are on common stock. Preferred stock can  be callable, meaning that the issue, the issuing firm can buy them back from the  stockholder to avoid making any further dividend payments. So if we issue  preferred stock, we run into cash troubles. We know we have to pay the  dividend on the preferred stock. We have to pay it so we can buy the preferred  stock back, meaning callable. We can buy it back from the stockholder, that way 

we can avoid paying out the cash flows to the preferred owners.