I have very fundamental questions. I have gone through the CFA notes and read on the internet, but dont have a clarity. Hope its ok to post such very basic questions.
Letz say I am the founder of a start up company. After 2 years, another 3 investors invest in the company. Now letz say each of the investors have 25% stake in the company( not sure how this is being arrived at in reality). In order to further expand, the company the decides to issue an IPO. They raise 5 million through the sale of 500,000 shares, thereby forgoing 20% of their stake in the company.
My question is,
-
Do the terms authorized , issued , outstanding shares talk in the context of the 500,000 shares issued to the public or does it include the shares held by the founding owner and initial investors of the firm ? In the above example what would be the number of authorized, issue and outstanding shares (assuming there are no selling share holders and new shares are issued)
-
The owner’s equity has diffrent components, contributed capital being amongst them. It is defined as amount received from the issuance of common stock and preferred stock at par value and teh additional paid in capital. Does contributed capital include only the money invested by public shareholders as result of purchase of shares during IPO or also includes the amount invested by founding owner and early investors ? Why does an investor pay more than par value ? Is it becoz he values it more ?
-
In the example given above, after the IPO, does each of the 4 investors loose an equal stake (5%) in the company after the IPO ?
-
What are restricted shares ? Are they part of issued / oustanding shares ?
-
Is it mentioned anywhere in the balance sheet as to wat % the company is owned by public and wat % by the founder and other early investors ?
-
When the company performs treasury stock operations, is this repurchase applicable only to shares issued to public investors or does this include shares held by owners and other insiders ? From my reading I understand it reduces the number of outstanding shares. Supposing the treasury stock is held for reissue at a later point in time, who owns these treasury stocks in the interim period? This repurchase results in a reduction in cash for the company and reduction in number of outstanding shares. So does it mean EPS increases with treasury stock operation, irrespective of whether it is cancelled or held for issue at a later point in time ?
-
“A Corp. paid $500 million for the outstanding stock of B Corp.” In all the places in the notes this refers to acquisition of B Corp. by A Corp. But B Corp. has its own share holders(public + insiders) and there is an amount attributed to shareholders equity on B Corp’s balance sheet. In a particlar reading it was given ideally A Corp pays Asset - Liabilities as per B Corps balance sheet + Goodwill. What about shareholders equity ?
I know this is a lot of questions and some might be very basic. Anyways…