Shares487

In this extract from the book “Investing in Stocks and Shares” by Dr. John White, we read about several financial definitions of terms that measure a company’s performance.

The first term is share, which gives its proprietor (the investor) the right to receive dividends, and ownership of the company’s assets, as well as a say in the company’s actions. We define assets as anything of value the company owns, minus all its liabilities.
Next, Dr. White goes on explaining nominal share value. Shares are valued depending on two things, the worth of the company’s assets, and their capacity to make money. We call the issued share capital of the company the sum of all the value of the emitted shares. Equity and stock are both synonyms of shares.

There are two kinds of shares, non-voting shares and common shares. Non-voting shares have the disadvantage of not having a voting right, as its name states. They exist for the sole purpose of keeping the control of the company within few people, usually the founders. Non-voting shares are of no interest to main investors, and also are valued at a lower price than common shares; not to mention their gradual rate of extinction.

Dividends are the amount of benefits distributed to share holders. The remainder profit is kept by the company for growth, or even future distribution of dividends when rougher times come though. The cover of the dividend is the fraction of profits the dividend represents.

Dr. White carries on explaining the P/E Ratio. When the company’s earnings are divided by the number of shares emitted, we obtain the earnings per share. The price to earnings (P/E) is the number of years we would have to wait in order for the dividends of the stockholders to pay for the current price of the stock. We must of course take into account that not all the company’s earnings go out as dividends, but yet again, we suppose that earnings will increase over time, and so will dividends.

Lastly, we define yield as a percentage of the current share price after tax. The interest rate in most countries is usually higher than the yields.

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