Shares_4664

This text explains us what shares are and other economic terms related with shares and their functions. Shares usually allow their owners to vote at a company’s “Annual General Meeting” and to receive a proportion of distributed profits in the form of a dividend. Another term are “The Assets”, assets are everything of value that is owned by a company (tangible and intangible assets) less its liabilities in the form of borrowings or payments to creditors.

Also, most shares have a nominal value, which at the beginning represented the asset value of the company but then this nominal value increases and the total of the nominal sum of all the issued shares is the issued share capital of the company. There are shares in which the holder has no vote in the company's strategy, these shares are called non-voting shares and designed by the suffix “A “. The idea of these shares is to retain the control of the company in the hands of the founding family. These shares have a gradual conversion from non-voting to voting status, but they are unpopular with major investors.

Other two terms to be analyzed are the Dividend and its cover. The dividend is a proportion of distributed profits to the shareholders. The company will pay only part of its profits as a dividend and the rest will be used for the growth of the company or to solve future financial problems. The cover of the dividend is the number of times that a company could have paid its net dividend to the shareholders.

Profits are earnings for the company and dividing them between the numbers of shares we obtain the “earning per share”. The P/E (price to earnings) ratio measures how many years of earnings per share at the current share price would be needed to pay for the share. Also not all the earnings are distributed in the form of a dividend because in the future the company will need them to repay the share price. Nevertheless, earnings will rise each year and dividends will be pure profit in the future, reducing repayment time of the share price.

The last term is the yield, which serves to measure the company’s behavior and it’s expressed as a net percentage of the current share price. In example the average yield in the UK is around 3.6 per cent. We also have to say that the interest obtained by investment in local bonds, or in the local equivalent of a building society are generally higher than the yields in different countries.

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