The extract from “Investing in stocks & shares” gives a brief explanation about some basic concepts that have to do with shares.

To start with, the writer defines the share as the right a shareholder has to receive a dividend as well as being a stake in the company’s assets and property (such as land, buildings, fittings, ect) and the right to vote at the Annual General Meeting.
Moreover, it defines nominal share value as the value which originally represented the asset value of the company. These shares, also known as stocks or equities, were sold at a market value which represented both the worth of the assets and their ability to make money.
There is also another type of share denominated Share “A”. Although these shares have the same features as the normal ones, the shareholders haven’t got the right to vote so the company’s control will retain in the hands of the founding family.

To continue, it explains what the dividends and its cover means. The dividend of the company is that proportion of its profits paid to its owners, the shareholders, leaving the remaining funds for internal growth of the company or as reserves to pay future dividends if profits fall. Whilst the cover is the number of times that a company could have paid its net dividend is the cover of the dividend.

Another concept mentioned is the “price to earnings ratio” (P/E ratio) which measures how many years would be needed for the dividends of the stockholders to pay for the current price of the stock. As every business aims to increase its revenues and dividends, it also aims to reduce the repayment time of the share price too.

To conclude, the writer explains the yield that is another way to measure the company’s performance and which is expressed as a net percentage (after income tax) of the current share price. The yields in each country are usually lower than the interest rate, as a consequence, shares are more risky but have higher return than bonds.

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