SAE Exam Preparation and Equity Insights

Nov 20, 2024

Lecture Notes: Preparing for the SAE Exam

Introduction

  • Presenter: Ken Finnan from Capital Advantage Tutoring
  • Objective: Help students pass the SAE exam on the first attempt

Key Components of SAE Exam Prep

  • Watching educational videos is crucial for exam preparation
  • Mixed feedback on teaching style; some appreciate the attitude, others do not

Ways for Corporations to Raise Money

Equity

  • C Corporation Structure
    • Create a C corporation with a board of directors
    • Sell shares to raise funds, giving up part ownership
    • Limited liability for owners

Debt

  • Bonds
    • Borrow money through bonds
    • Lenders receive periodic interest payments
    • In the case of business failure, bondholders get paid before shareholders

Types of Equity: Ownership Stocks

Common Stock

  • Ownership stock that fluctuates with company performance
  • Potential for growth and dividends
  • Shareholders have voting rights
  • Lower priority in case of bankruptcy

Preferred Stock

  • Fixed dividends (e.g., 5% of par value)
  • Paid before common stock dividends
  • No voting rights or preemptive rights
  • Trades similar to bonds

Issuing Shares

Process

  • Authorization: Authorize a number of shares in the corporate charter
  • Issuance: Sell a portion of authorized shares to raise capital
  • Treasury Stock: Shares repurchased by the company
    • Does not receive dividends or voting rights

Outstanding Shares

  • Issued shares minus treasury shares
  • Only outstanding shares are available for trading

Market Capitalization

  • Calculated by multiplying outstanding shares by share price

Rights of Common Shareholders

  • Right to Inspection: Access to company records such as 10-K or 10-Q
  • Voting Rights: Vote on key company matters like stock splits and board members
  • Dividend Rights: Receive quarterly profit distributions
  • Right to Transfer: Freely buy and sell shares without legal complexities

Conclusion

  • Recap of different stock types and shareholder rights
  • Emphasis on the importance of understanding stock transactions and rights for exam success