shares_1804

The text “What are shares”, extracted from a guide webpage, gives an approach on some basic ideas about shares, also known as equity or stock. Shares are each of the parts in which the share capital of a company are divided, and gives its owner (known as the shareholder) the right to obtain a dividend and the possibility of voting at the annual general meeting of the company.

The assets of a company consist in all the goods and rights owned by a company, such as cash-in-hand or property, among other. When calculating assets, liabilities must be deducted, as they correspond to all the credits the company owes.

Shares have a nominal value, which is used to give a reference of the asset value of the company. The sum of all the nominal values of all the shares is equal to all the share capital of the firm, so, when the bigger the nominal value of the shares is, the capital of the company will be also higher. This relationship explains that shares don’t have a fixed value, as they may perfectly vary (either increasing or decreasing its value), giving them an ability to make profits or loses.

Although we said before that most of the shares give the shareholder the right to vote at the annual general meeting, shares “A” are non-voting: by being this, the owner has not the benefits of voting, and thus cannot participate in the company’s activities and plans.

The dividend is a payment made by the company to its shareholders, and corresponds to a certain portion of the profits. The rest of the profits in a year are kept by the company, in order to increase internal growth, and may also be used in the future to pay another dividend. The cover is a term closely related to the dividend, as it consists in the number of times dividend could be given in order to spend all the profits (which equals to the profits divided by the dividends).

It is interesting to see the characteristics of each share individually. For example, the earning per share gives an insight about the earning that every share gives. A ratio complements what was just presented: the P/E ratio is used to measure how long it would take to pay the actual price of the share with the earning given by each share.

Investors always have the hope that earning, and therefore dividends, will increase each year, giving a bigger profit: waiting seems indeed to be a good choice for shareholders, to then sell their shares at higher price. Obviously equities can be sold at the current market price.

Finally, the yield is an important measure of the company’s performance. Expressed as a net percentage, it is the amount returned to the owners. Yields may vary from one country to another, but are usually lower than interests.

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