1.45 - Market Capitalisation Flashcards
What is a Company?
A separate legal entity
What are Shareholders?
The owners of a company
Describe the features of Private Limited Companies (LTD)
Most popular form of incorporated business Privately owned Shares cannot be traded publicly Usually just 1 or a few shareholders Quick and cheap to set up and administer
Describe the features of Public Limited Company (PLC)
Minimum share capital of £50,000
Shares may be traded on a public stock market
Usually many shareholders
More determined disclosure of information required
Costly to administer
What is a Share?
An individual part of the issued share capital of a company
How do “Ordinary shares” work?
Shareholders have equal voting rights based on number of shares held compared with the total number of shares issues
Shareholders qualify for a dividend if one is paid
What are the rewards from being a shareholder?
Dividends
Capital Growth
Describe dividends as a reward to shareholders
Payment made to shareholders by the company from earned profits
Amount paid is “per share”
Normally no requirement to pay dividends but most quoted companies do
Describe Capital Growth (Capital Gain) as a reward to shareholders
Arises from an increase in the value of the business
Reflected in an increase in a share price
Only realised when a share is sold
No guarantee that a shareholding will increase in value
Describe Share Price
A share price is determined by the interaction of supply and demand
If demand for a share>supply (more buyers than sellers) then the share price should rise
A falling share price indicates excess supply (more sellers than buyers)
What does the share price of a Private Limited Company do?
Initially set when shareholders “subscribe” for their shares
Thereafter only determined when shares are bought or sold
No active market in the shares of a private company - so hard to judge current value
What does the share price of a Public Limited Company do?
Highly transparent - displayed publicly, in real time
All trades are disclosed (how many bought/sold and for what price
Share prices widely published and tracked
What are the two types of factors that influence a PLC’s Share Price?
Factors within the company’s control
Factors outside the company’s control
What are the factors within the company’s control?
Financial performance (eg - profit growth)
Dividend policy
Relationship with key investors (and communication)
Management reputation
What are the factors outside the company’s control?
State of the economy
General market sentiment
Industry developments potential for takeover
Alternative investments in the company’s sector
