Page 447 - Business Principles and Management

Unit 5

business note company purchases installment sales contracts at a dis-

count from businesses that need cash or that do not care
to handle credit and collections. A sales finance com-
pany may also lend money to a business and use the
business’s installment contracts as security for the loan.
Every business manager and investor must
know how to read stock tables. Following a
stock is an important way to understand the LONG-TERM DEBT CAPITAL
financial picture of a company. Business man- Long-term debt is capital borrowed for longer than a
agers can see how investors view the com- year. A business usually obtains such debt capital by
pany as stock is bought and sold. Investors issuing long-term notes and bonds.
can make decisions whether to buy, hold, or
sell a stock based on its performance. TERM LOANS A term loan is medium- or long-term financing
Stock quotes appear in the financial sec-
tion of newspapers and on financial Web sites. used for operating funds or the purchase or improvement
of fixed assets. Term loans, or long-term notes, are written
Reading and understanding a stock table is for periods of 1 to 15 years or longer. They are a signifi-
easy if you understand the abbreviations used. cant source of capital for most businesses. Because term
Here is an example.
loans extend for a long period, lending institutions require
the principal and interest to be repaid on a regular basis
52-Week Hi 52.75 over the life of the note.
Lo 40.93
Long-term notes are one method used to finance the
Stock Bnk of Amer
purchase of expensive equipment. Rather than borrow
Sym BAC large sums of money, however, a company may prefer to
Div 2.2 lease the equipment. A lease is a contract that allows
Yld. % 4.36 the use of an asset for a fee paid on a schedule, such as
PE 12.6 monthly. The lease may be obtained from the equipment
manufacturer, a finance company that handles that type
Vol. 100s 117,412
of leasing, or a bank. Leasing is a practical substitute for
Hi 51.51
long-term financing, especially if capital is difficult to
Lo 51 obtain. The maintenance of the equipment and the costs
Close 51.4 of insuring it are usually not included in the lease agree-
Net Chg –0.12 ment. When businesses lease buildings and equipment,
they know exactly what the monthly payment will be
52-week Hi and Lo — The highest and lowest and how long the lease will last. They do not have to
price at which the stock was traded over the obtain the large amount of financing that would be
previous 52-week period. needed to purchase the buildings or equipment.
Stock (Sym) — The stock name, often abbrevi-
ated, and the stock symbol used for that stock. BONDS A bond is a long-term debt instrument sold by
Div — Dividend/distribution rate. Unless noted the business to investors. It contains a long-term written
in a footnote, this reflects the annual dividend. promise by the business to pay the bondholder a defi-
Yield % — The dividends paid to stockholders nite sum of money at a specified time. The business re-
as a percentage of the stock’s price. ceives the amount of the bond when it is initially sold.
PE — The price-to-earnings ratio, the per-share It must then pay the bondholder the amount borrowed—
earnings divided by the closing price. called the principal or par value—at the bond’s matu-
Vol 100s — Sales volume, expressed with two rity or due date. Bonds also include an agreement to
zeros missing. 283 means 28,300 shares traded pay interest at a specified rate at certain intervals.
that day. Bonds are debt equity and do not represent a share of
Close — The last price the stock traded at ownership in a corporation. Rather, they are debts the
that day, which is not necessarily the price corporation owes to bondholders. People buy bonds as
the stock will open at the next day. investments, as they do stocks. But bondholders are credi-
Net Chg — The net change in price calculated tors, not owners, so they have a priority claim against
from the previous day’s close. the earnings of a corporation. Bondholders must be paid
before stockholders are paid their share of the earnings.
Because bonds are negotiable financial instruments, they

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