Capitalisation And Income Distributions

Question 1

What is a capitalisation issue

Answer 1

Issue existing shareholders new shares in direct proportion to holding (1 for 1)

Increase amount shareholders hold

In exchange of cash

Existing SP may fall (per share)

No additional capital so value of Co stays same

Rationale is that reserves converted to share cap (revenue reserves or share prem accounts) - any increase in cap matched by reduction in reserve account

Purpose makes shares more attractive

Similar to script issues - increase shares in circulation by reducing price of shares in proportion

I.e shareholding of 10,000 at £2 under 1 for 1 would have 20,000 for £1

Question 2

What’s a stock split

Answer 2

Co issues additional shares to existing holders In direct proportion to holding

Approval of directors

It’s a share split

Reduce NV of shares matches increased no shares issued

No effect Co markets value or % ownership

Makes shares marketable while maintaining reserves/ shares more accessible to broader spectrum of investors

Question 3

What’s a stock consolidation

Answer 3

Reverse of stock split

Involves increasing NV of shares to reduce number of shares in issue

Increase MP of shares

No effect Co market value or % holding

Used to level out share price of fallen unacceptable level

Question 4

What are dividends

Answer 4

Money distributed to shareholders based on amount per share

Distributable profits

Income source

2 payments a year (interim & final)

Directors discretion/ agreed at AGM

Shareholder have power to reduce or cancel but not increase payment

Used to return surplus capital / large one off payments

Question 5

What are deferred shares

Answer 5

Founder shares

Part ord share cap

Deferred dividends payments up to 10 Years

During time no income but still got cap growth

Increased voting rights

Payments rank above ord ranked shares