Bonds

Ref
"ABC Corporation issued bonds worth $1,000,000 face value on January 1, 1990. Semi-annual interest payments are due on July 1 and January 1. The bonds were scheduled to mature on January 1, 2000."

Case I: Issuing Bonds Above Par Value-premium
Market rate of interest = 3%
Coupon rate = 4%.
Since the market rate of interest is below the coupon rate, bonds will be issued at premium or above par value.
company borrowed $1,085,884 at the prevailing market rate of interest which is three percent. In the first period, the interest expense for six months is $16,288 (= 1,085,884 x .03 x 0.5). However, the company paid $20,000 (=1,000,000 x .04 x 0.5) to bondholders. Since the amount paid to bondholders is greater than the interest expense, the excess payment is considered a repayment of principal and is subtracted from the outstanding loan. As a result, the outstanding loan decreases by $3,712 (=20,000-16,288). The second period begins with the loan outstanding at the end of first period. Again, since the company is paying more amount than the interest, the excess payment goes towards principal and reduces the outstanding loan amount.

Case II: Issuing Bonds Below Par Value - Discount
Market rate of interest = 4%
Coupon rate = 3%.
Company borrowed $918,206 at 4% interest rate. In the first period, the interest expense for six months is $18,364 (= 918,206 x .04 x 0.5). However, the company paid only $15,000 to bondholders. Since the company has not paid the full interest amount, the shortfall ($3,364 = 18,364 - 15,000) is added to the outstanding loan amount. As a result, the outstanding loan increases by $3,364 and is now $921,570 (= 918,206 + 18,364) at the end of the first period. We start out the second period with the loan outstanding at the end of the first period. In the second period, the interest expense for six months is $18,431. Since the company is not paying the entire interest amount, the unpaid interest ($3,431 = 18,431 - 15,000) is again added to the outstanding loan amount.

Basic Vs Diluted Eps

Ref:
basic EPS and diluted EPS. The basic figure is the total earnings per share based on the number of shares outstanding at the time. The diluted EPS figure reveals the earnings per-share a business would have made if all stock options, warrants, convertibles, etc. were invoked and the additional shares increased the total shares outstanding.

Risk Analysis
Business Risk = sigma OI/ mean OI
Sales Variability = sigma sales/mean sales
Operating Leverage = average change in OE/ average change in sales
debt to equity ratio = long term debt / long term equity
long term debt to total long term capital = long term debt/ long term total capital
total debt ratio = (current liability + long term debt)/long term capital
total interest bearing debt to total funded capital = total interest bearing debt /(long term capital - no interest bearing liability)
interest coverage = EBIT/ interest expense
fixed financial cost ratio = (ebit + elie)/(interest expense + elie)
cash flow coverage of fixed financial costs = (CFO + interest expense + ELIE)/(interest expense + elie)
cash flow to total interest bearing debt = CFO / (long term debt + interest bearing liability)

Par Value

Ref:RiskGlossary

"250,000 shares of common stock will be issued, each with a par value of $10, and 10,000 shares of preferred stock will be issued, each with a par value of $100."



Par value can be thought of as the stated issue price of any security.
For investors, par value served as a guarantee that other investors would not receive shares on more favorable terms.The protection par values provided investors became less important over time. Financial regulation and increased transparency—due to newspapers and telecommunications—made them less important. Also, as markets became more liquid, with prices responded more rapidly to market developments, it became increasingly difficult for a corporation to commit in advance to issue securities at their par value.

• Common Stock:par value became a stated minimum issue price. In the United States, a corporation could issue stock at a price in excess of par value. If it issued the stock below par value, the stock was called watered. Purchasers of watered stock were liable to the corporation for the difference between the par value and the price they paid. Today, in many jurisdictions, par values are no longer required for common stocks. In jurisdictions that still require them, corporations typically state nominal par values, perhaps listing a USD .01 par value for a stock that will be issued at USD 25.00 .if common stock is callable, it is usually at par value or at a small premium over par value.Proceeds from common stock sale above par value are reported as additonal paid in capital.

• Preferred Stock:Preferred stock is typically issued at a price close to their par value. Preferred stock dividends are calculated as a percentage of par value.

• Bonds:A standard coupon bond is designed to be sold for some par value, pay periodic coupon payments equal to a percentage of that par value, and then return the par value to the investor at maturity. Accordingly, the par value, together with any final coupon, is the maturity value of the bond. Due to interest rate fluctuations between the time that a bond's coupon is set and the time when the bond is actually issued, bonds rarely sell at exactly par value.At issuance or in the secondary market, a bond sells above par if the clean price (the sale price less any accrued interest) exceeds its par value. It sells below par if the clean price is below par. It sells at par if the clean price equals the par value. A bond's price may be above or below par due to changes in interest rates or change in the bond' credit quality.Treasury bonds typically have par values of USD 10,000. For municipal bonds or corporate bonds, these are typically USD 5,000 and USD 1,000, respectively.

Preferred Stocks

Preferred stock: preferred share or simply a preferred, is a share of stock carrying additional rights above and beyond those conferred by common stock.

• a dividend amount that never changes, if the dividend is paid at all.And is paid before paying to common stock holders.
  
• precedence over shares of common stock when it comes to the distribution of profits and the liquidation (liquidate assets on bankruptcy) proceeds of a stock corporation
• superior voting rights generally, or special voting rights to approve certain extraordinary events
• If it is redeemable by the holder then it is to be excluded from the equity section and reported immedaiately after liability section in the statement of stockholders equity.

Preferred stock is usually issued with a $100 par (face) value. The dividend payments are a fixed percentage of the par. For example, if the par value of a stock share were $100 with a 6 percent annual dividend rate, the annual dividend would be $6 on that share. ZZZ had 1000 shares of 10 percent par $100 preferred stocks outstanding.


Common Stock:
The most usual and commonly held form of stock in a corporation.Common stock that has been re-purchased by the corporation is known as treasury stock.