Shares, Share Prices and Market Capitalisation Flashcards
1
Q
What is a company (Incorporated Business)?
A
Separate legal entity. Owners of a company are shareholders.
2
Q
What is a share?
A
An individual part of the issued share capital of a company.
3
Q
Shares:
A
- Most are ‘ordinary shares’
- Equal voting rights based on number of shares held (shareholding)
- Shareholding % represented by number of shares held compared with total number of shares issues
- Quality for dividend - if one is paid.
4
Q
What is a ‘Share Price’?
A
- Determined by interaction of supply and demand
- If demand for a share > supply (more buyers than sellers) then share price should rise
- Falling share price indicates excess supply (more sellers than buyers).
5
Q
Share price of a Private Company
A
- Initially set when shareholders ‘subscribe’ for their shares
- Thereafter only determined when shares bought or sold
- No active market in shares of private company - so hard to judge current value.
6
Q
Share price of a (quoted) Public Company
A
- Highly transparent - displayed publicly, in real-time
- All trades disclosed
- Share prices widely published and tracked.
7
Q
Factors that Influence a PLC’s Share Price within Company’s Control
A
- Financial performance (e.g. profit growth)
- Dividend policy
- Relationship with key investors
- Management reputation
8
Q
Factors that influence a PLC’s Share Price outside the Company’s Control
A
- State of economy
- General market sentiment
- Industry developments
- Potential for takeover
- Alternative investments in company’s sector
9
Q
Share Prices & Profits Warnings
A
- Share price of quoted public company is significantly influenced by market expectations of business performance
- Unexpected warnings indicating that market expectations will not be met almost always result in significant fall in share price
- Such bad news is known as a ‘profits warning’.
10
Q
What is Market Capitalisation?
A
Represents total market value of issued share capital of company.
11
Q
Market Capitalisation =
A
Share price (per share) x Number of shares issued
