Shares_2206

The text is an extract taken from the book “Investing in Stocks & Shares” written by Dr. John White. The book shows the rudiments of the economy and try to explain in a easy way the basics of the economic world.

First of all, the text explains what it is a share. Explains all the functions that a share owner is able to do in a company as vote proportionaly in the annual general meeting (AGM) or obtain dividends.

Secondly, the book describes assets. Assets for a company, are cash-in-hand, property (land, buildings, and fittings) and the company's stock of raw materials and work-in-hand, less its liabilities to creditors in the form of borrowing or payments.

Furthermore is the nominal share value. All shares must have a nominal value and this is the value granted to the owner at the time of emission. The value use to be 25p. All issued shares represents the entire share capital of the company. The are also non-voting shares for specific companies. They were created to keep the control of the company unableing the shareholders to vote in the AGM, on the other hand, this shares use to obtain more dividends than normal shares, besides that they still unpopular.

Another point are the dividend and the cover. The dividend of the company is that proportion of its profits paid to its owners. This shareholders also declined other portion of the profits to get a bigger company, buying new resources for the company that can be used for new investment projects. The cover of the dividend is the number of times the company could have paid the dividend with its profit.

Next concept is the P/E ratio. We can define the company’s profits as earnings. When the earnings are divided by the number of shares in existence, we get the 'earnings per share' (eps). However not at all earnings are paid as a dividend so in the future they will be needed by the company to replay the share price. However, it is expected that earnings and dividends will increase each year. The Financial Times says that the P/E ratio is: P/E = 13.7

The last concept is the yield. The yield is a tool to measure the company’s behavior and it is expressed as a net percentage of the current share price. In example, the average yield in the UK is around 3.6 per cent, 2.8 in the USA and 1.0 in Japan. This is based on the level of risk and that is why the interest acquired by investment in local bonds or in the local equivalent of a building society are generally higher than the yields in different countries.

Mark = 7

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License