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WHAT ARE SHARES? .

This extract from the book “Investing in stocks and Shares”, tell us the importance of some basic concepts related to shares and that are very important for a company.

Firstly it talks about what a share is; the writer defines it as the right a shareholder has to receive a dividend and also as the right to vote at the annual general business meeting.

Secondly; assets consist of: the cash of the company, its property (buildings, land…) and the company’s stock, minus the liabilities like payments to creditors.

Next thing of what the writer talks about is; “Nominal Share Value”, which represent the asset value of the business. This means that if a share has a nominal value of 25p, but it is sold at a higher price, it shows the company’s possible future profits.
Also, there are some non-voting shares for specific companies, which do not allow the holder to vote in the business’s strategy.
Nowadays these shares are becoming unpopular and losing their importance.

The dividend is the part of the profits given to the shareholders. The company only gives a fraction of the profits so the rest constitutes the capital for future growth and the means of stock in case the business declines.

The PE/ ratio, (price to earnings) ratio, shows us how many years would be needed to buy one share at the current earnings per share ratio.

Finally he tell us about the importance of the yield, which is represented as a net percentage of the share price, it’s normally lower than the interest generated by investing in bonds, even though they are thought to be safer. The lower return from shares reflects the growth potential of dividend payouts.

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