shares, shareholders, share prices

• Shareholders in both private and public limited companies earn their rewards from two aspects of their business ownership

  Dividends

  Capital Growth
• Dividends 


  • Payments made to shareholders by the company from earned profits

  • Amount paid is “per share” – e.g. £1 per share held

  • Normally no requirement to pay dividends, but most quoted companies do
• Capital Growth 


  • 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 (the price paid)

  • No guarantee that a shareholding will increase in value – business value can change both way
• What is a Share?

  An individual part of the total issued share capital of a company. Most shares that are issued by a company are “ordinary shares”.

  • Equal voting rights based on number of shares held (shareholding)
  • The shareholding % = the number of shares held compared with the total number of shares issues
  • Shares qualify for a dividend –but, only if one is paid
• What is a Share Price?

  the price paid to acquire ownership of that share.

  • Like any other price in a market, 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)
• Market Capitalisation 


  total market value of the issued share capital of the company
• Market Cap Formula


  Share price (per share) x No. shares in issue
• Internal factors that influence the share price

  Financial performance (e.g. profit growth)

  Dividend policy (how profits are distributed to shareholders) Relationship with key investors (incl. communication)

  Management reputation
• External factors influencing the share price

  State of the economy

  General market sentiment

  Whether the company is a takeover target

  Alternative investment’s in the company’s sector
• Equity Finance


  Returns: dividends and capital growth

  Part of the ownership of a company

  Long-term source of finance

  Returns tend to be higher given higher risk

  Can be repaid (share purchase) but this is unusual
• Debt Finance


  Most commonly in the form of loans or overdrafts

  Return: interest on amount loaned and outstanding

  Repaid over an agreed period

  Can be short or long-term

  No participation in the ownership of the company

  Often secured against the assets of the company
• Flotation


  Share issued on Stock Exchange for the first time

  Opportunity for existing shareholders to realise profits on their investment

  Costly + time-consuming process

  Typically aims to raise at least £25-50 million + of new capital
• Rights issue


  Fresh issue of new shares to existing shareholders

  Shareholders have the “right” to subscribe for the new shares, usually at a significant discount to the existing share price

  Often done to help finance a major expansion (e.g. takeover) or to help refinance a business in difficulty
• Benefits of raising finance through the issue of new shares

  Able to raise substantial funds if the business has good prospects

  Broader base of shareholders

  Equity rather than debt = lower risk finance structure
• Drawbacks of raising finance through the issue of new shares

  Can be costly and time-consuming

  Existing shareholders’ holdings may be diluted

  Existing shareholders’ holdings may be diluted