Tuesday 5 February 2013

SHARES AND STOCKS.. explained

lets assume that i have a company ( Reliance mobile) and my company has issued 1000 shares of Rs. 100 each.
you purchased 50 shares of my company by paying Rs. 5000.

this means that you own 50 shares of my company and “stock of Rs.5000” in this company.

  • In short, when we talk about shares we refer to the number of papers held by us.
  • When we talk about stocks, we refer to the money value of those papers held by us.
  • But ultimately, both shares and stocks suggest the same thing: “Equity”. CLICK HERE 

Different type of shares

1. Initial public offering- is when any company makes either a fresh issue of securities for the first time. here first time is the most important thing.
2. Rights issue- You launch IPO, get funds from the public, and started a company
After some years you want more money to expand the company, then you have issue additional shares. But under the companies act, you can issue additional shares to the existing shareholders only. This is called rights issue of shares
Here, you give notice to the existing shareholders, offer them to buy your new-shares, you cannot offer any other “outsider” to purchase the shares.     


 NOTE-------- If you do not want “rights issue of shares”, you have to hold a general meeting of shareholders and pass a resolution that “company does not need to offer new shares to the existing shareholders, and these new shares are available for anybody to purchase


THEN WHAT IS THE IMPORTANCE OF RIGHT ISSUE???
1. The direct use of right issue is generate more money for the business.
2. It is also used to reduce debt to equity ratio.

how to reduce debt to equity ratio?????

i have told earlier that bonds have rating given by  credit rating agency.  CLICK HERE
credit rating agency, before giving any rating looks into the debt to equity ratio.
the company with high  debt to equity ratio means more debt= high interest = lower rating.
therefore its very difficult for such companies to issue shares because of lower rating...

so how can they improve their debt to equity ratio???????????
Simple: offer new equity (shares) to existing shareholders @ a discounted rate. (=Rights issues of shares). You’ve offer it at a discounted rate, else no one would buy it.
example
someone already have 10 shares of my company, if he buy 10 more shares from me (1:1), Each of these shares will have “Worth Rs.100” printed on it but I’ll give it to him for Rs.50 only.
What good does it do to me?  in the legal record, for the calculation of Debt Vs Equity =they’ll calculate using Rs.100 face value. Thus my Debt:Equity ratio will go down, and I’ll look good when credit rating agency. 

 ARTICLE ARCHIVES CLICK HERE




1 comment:

  1. Hiii bro u r doing very gud job for working professnals plese upload more materials on banking awareness for bank po exam???

    ReplyDelete