Prudential Financial Inc.: Stockholders’ Equity and Balance Sheet Leverage
Corporate Finance
Case Study:
Prudential Financial Inc.: Stockholders’ Equity and Balance Sheet Leverage
1. Compare the stockholders’ equity section of the balance sheet with the statement of stockholders’ equity. Describe in general terms how they relate.
The Balance Sheet equity is a snapshot of the balances at book value of the funds contributed by the owners to finance operations, whereas the statement of stockholders’ equity shows a summary of the transactions which took place during a financial period, ie shows the movement. The closing balances in the statement of stockholders’ equity will be the balance on the Balance Sheet of the business.
For example, the common stock held in treasury in the Balance Sheet will show the cost at which stock was repurchased / reissued to the balance sheet date. In the statement of stockholders’ equity it will show a breakdown for the financial period of the opening balance, any repurchases of stock from the market and any reissues of treasury stock which will sum to the closing balance which is reflected in the balance sheet.
2. How many shares of preferred and common stock were authorised, issued and outstanding as of December 31, 2007? Why do companies issue different classes of stock?
Preferred Stock
Common Stock (incl. class B)
Authorised
10,000,000
1,510,000,000
(1.5b common + 10m B Stock)
Issued
0
606,901,479
(604,901,479 common + 2m B stock)
Outstanding
0 (as none have been issued, there cannot be outstanding stock)
From the information provided we cannot determine the number outstanding common stock as there has been stock repurchases and reissues and those figures have not been provided in the case.
However, we know intuitively that the figure would be below the number of shares issued.
Stock classes differ in the following key respects:
Dividends: Preferred stock has the right to be paid dividends before any other class of stock
Bankruptcy: Preferred stock will
Case Study:
Prudential Financial Inc.: Stockholders’ Equity and Balance Sheet Leverage
1. Compare the stockholders’ equity section of the balance sheet with the statement of stockholders’ equity. Describe in general terms how they relate.
The Balance Sheet equity is a snapshot of the balances at book value of the funds contributed by the owners to finance operations, whereas the statement of stockholders’ equity shows a summary of the transactions which took place during a financial period, ie shows the movement. The closing balances in the statement of stockholders’ equity will be the balance on the Balance Sheet of the business.
For example, the common stock held in treasury in the Balance Sheet will show the cost at which stock was repurchased / reissued to the balance sheet date. In the statement of stockholders’ equity it will show a breakdown for the financial period of the opening balance, any repurchases of stock from the market and any reissues of treasury stock which will sum to the closing balance which is reflected in the balance sheet.
2. How many shares of preferred and common stock were authorised, issued and outstanding as of December 31, 2007? Why do companies issue different classes of stock?
Preferred Stock
Common Stock (incl. class B)
Authorised
10,000,000
1,510,000,000
(1.5b common + 10m B Stock)
Issued
0
606,901,479
(604,901,479 common + 2m B stock)
Outstanding
0 (as none have been issued, there cannot be outstanding stock)
From the information provided we cannot determine the number outstanding common stock as there has been stock repurchases and reissues and those figures have not been provided in the case.
However, we know intuitively that the figure would be below the number of shares issued.
Stock classes differ in the following key respects:
Dividends: Preferred stock has the right to be paid dividends before any other class of stock
Bankruptcy: Preferred stock will