In the article “What are Shares?”, Dr. John White explains that companies’ major purpose is to make profits (company’s earnings). Becoming a shareholder implies holding a share on these lucrative businesses, that is, enjoying dividends, owning part of that companies’ assets and normally having the right to vote. Here we can distinguish two different types of shares, those giving shareholders the right to contribute in the company’s decisions and those called “A” or non-voting shares which retains the control of the business in the founding group. However the last group is becoming less popular.

The business assets consist of its cash, properties, stock of raw materials and work-in-hand minus its liabilities. These assets were initially the ones determining the nominal shares values, which implied the companies’ assets worth and its facility to make profits. Once this share is issued, the dividend received is the part of the companies’ revenues paid to the shareholders, the other part of the profits may saved or used to finance further growth.

When determining companies’ performance, its cover, P/E ratio and yield are useful methods.

The first method, cover, determines how many times a company could have paid its actual dividends. The following method is the price to earnings ratio (P/E), which allows us to calculate the number of years needed to cover the share’s price with current shares’ dividend. Finally, the yield method is examined; it is the net percentage of the current share price.

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