Shares1313

The extract from the book “Investing in stocks & shares” by John White explains briefly sundry concepts related with shares such us assets, nominal share values, dividends, price to earning ratio and yields.

It explains the reader what a share represents to the investor not only giving him the opportunity to recieve a dividend (declared once or twice a year), but also having a stake in the company's assets and a vote (proportional to the size of the investor's holding) in the company's annual general meeting (AGM).

The asset of the company equals the company's stock of raw materials, property and cash minus the liabilities of the company.
Most shares have a nominal value, which originally represented the asset value of the company. They were once sold at a market value which represented the worth of the assets and their ability to make money. The total of the nominal sum of all the issued shares is the issued share capital of the company. There are also another type of shares, which do not allow the investor to vote in the business’ strategy designated by the suffix 'A'. These shares were originally constituted, so that the family that had started the business could still have control over it. Nonetheless, these shares are preferred by very few investors and are therefore are cheaper and less traded.

The text goes on to analyze the dividend. The dividend is part of the profits that is distributed among the investors. The rest of the profits are kept either to continue growing as a company, or as provisions, for what might happen to the company in the future.The number of times that a company could have paid its net dividend is the cover of the dividend.

The P/E (price to earnings) ratio measures how many years of earnings per share would be needed to pay for the share at the current earnings per share ratio (profits divided by the number of shares).The company expects the earnings to rise each year, so that each year the payment measured in years is reduced.

Finally Dr.White explains the concept of the yield, which is another measure of a company´s achievements,commonly expressed as a net percentage of the current share price. The yields in each country are lower than the interest in local bonds. This happens because shares are more risky but have a higher return than bonds.

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