Element 4-Equities Flashcards
What is the reason for issuing shares (stock)-to finance a company?
The most important reason for corporations to issue shares is to raise money, which is called Capital and can be used to pay fir the operations and growth of the issuer.
What is the definition of IPO?
IPO an Initial Public Offering is the first time shares are offered to members of the public. When the company becomes listed on a stock exchange.
- What are the potential sources of return from shares?
2. How to calculate the dividend yield given the share price and the dividends paid in the year.
- Dividends and capital gain.
Dividends are the regular ongoing income that a shareholder may receive.
Every quarter or every half year. The amount is not fixed; instead it’s determined by the management of the company and driven mainly by profitability and expectation. When expressed as a % of the share price, the resultant figure is described as the dividend yield.
Capital Gain is when shares are increased in value and sold for more.
- Formula: total dividends paid in the last year $/share price % x 100= % dividend yield
What is the benefit of having shares?
Shares provide the right to vote at AGM.
What are the risks of owning shares?
Lack of profit for shareholders it means no dividends.
In case of Bankruptcy/collapse the shareholders will get nothing the value of shares will be at loss.
In the event of collapse it will be the lenders that get their money first.
