CALLABLE AND REDEEMABLE STOCKS

CALLABLE STOCKS

Are stocks that can be redeemed by the issuing company before their maturity date.
Redemption price is usually higher than the par value of the two stocks to increase their salability.
Preferred stocks are generally callable.
TWO KINDS OF REDEEMABLE OR CALLABLE STOCKS

Mandatory type of callable stocks requires the corporation to redeem the stocks with in a specific
period of time.
Optional type of callable stocks does not require the corporation to redeem the stocks. (optional)
Since funds are necessary to redeem these stocks the corporation has to build a sinking fund which is an
amount set aside from the earnings of the corporation specifically earmarked for the redemption of the
stocks.

Indirect redemption is used by the corporation to redeem those stocks that are not redeemable. It is done
through the redemption of stocks in the stock market through brokers and dealers.
CONVERTIBLE STOCKS

 Are stocks that can be exchanged to other securities of the corporation either for another class of
stocks or bonds at a specified ratio.
 Conversion ratio is the rate at which a stock is exchanged with other stocks or bonds of the
stockholders.
ADVANTAGES OF CONVERTIBLE STOCKS

 It increases the salability of the stocks because the investor has the chance of diversify his investments.
 Protection to the stockholder against dilution of the shares of stocks of the corporation.
PAR VALUE AND NO PAR VALUE STOCKS

 Par value stock is one that has an assigned value on its face. This can be found in the stock
certificate.
 No par value stocks are those stocks without any designated price on its face.
RESTRICTIONS IN THE ISSUANCE OF NO PAR VALUE STOCKS

 No par value stocks may be sold for less than P 5.00

 No par value stock may be issued which are preferred as to assets.
 Stocks without a par value cannot be sold on installment basis.
 Bank, trust companies, insurance companies and building and loan associations may not issue no-par value.
 Capital stock without par values cannot be issued without the prior approval of the public service commission.
GUARANTEED STOCKS

 Are those stocks whose dividend payments are assured by a corporation other than the issuing corporation.
 Deferred stocks- whose dividend payments are postponed for a time in the future and that is subject to the
lapse of a period of time or the occurrence of a particular event in which allows the corporation to declare
dividends.

 Example:
 Dividends will be declared five years from the issuance of the stocks
 Dividends will be declared in 2012
 Dividends will be declared after the attainment of the net income of P 1,000,000.
CORPORATION ACHIEVES TWO THINGS

 They may avoid paying the principal and the interest on the books
 The corporation eases the dividend obligation of the company in times of financial crisis.
Stock purchase warrants- an instrument given to stockholders giving him the option to buy shares of stocks from
the company within a specific period of time at a stipulated price.

Founder’s shares- are stocks given to the incorporators of the firm.

Promoter’s shares are those stocks used for compensating promoters for the services they rendered in promoting the
corporation.

Dividends- are corporate profits or earnings set aside by the board of directors to be distributed to the stockholders in
proportion to their stocks holdings.
KINDS OF DIVIDENDS

 Cash dividends are distributed by the corporation when it has enough cash to declare as dividends, This will
depend on the cash position of the firm.

 Requirements in declaring cash dividends:

 There must be an income of the corporation
 The firm has enough cash to be given out as dividends
 The dividends are declared by the board of directors
 Notices are sent to the stockholders informing them of the declaration of cash dividends.-
Stock dividends arise when the board of directors decides to expand the business operation and therefore
stockholders are given in its equivalent in shares of stocks of the corporation.

Requirements in the distribution of stock dividends:

There must be a corporate profit
The profit must be declared by the board of directors in stocks.
The stock dividends must be approved by 2/3 of the outstanding stock in a meeting called for that purposed.
Notice must be sent to the stockholders.
 Property dividends- are those dividends given at the discretion of the board of directors in the form of properties
of the corporation such as goods or stocks owned by the corporation but issued by other corporations.

 Scrip dividends- is a written certificate issued by the corporation to the stockholders entitling them to the
payment of cash at some future designated date.

 Liquidating dividend- generally dividends arises from the earnings of a corporation, but when a corporation is
winding up its affairs or would like to narrow down its operation, they may declare liquidating dividends from the
proceeds of the corporate assets sold.