Common Shares

A type of Equity.

• Owners of the firm
• Entitled to share in the profits after all other obligations are satisfied
• Earnings may be paid out as dividends or reinvested through retained earnings
• Shareholders vote for the board of directors who controls management
• Usually one share/one vote, but may be multiple/subordinate voting structure in place
• Common shareholders have the lowest ranking in the event of reorganization/bankruptcy, and often are wiped out

Valuation

As they’re no guarantee on dividend issuance, valuation is a bit tricky. There are three primary methods:

• Dividend Discount Model (DDM)
• Multiples
  • Price/Earnings (P/R) is commonly used
  • Valuation cases
• Discounted Cash Flow (DCF) valuation
  • Valuation cases