Shares2702

The text, extracted from the book “Investing in Stocks & Shares”, a step by step guide to making money on the stock market, written by Dr. John White, shows us some concepts related to shares.

At first, the text explains that a share represents an equal proportion of a firm's capital. The share entitles the shareholder to share in the earnings of the firm when they occur, and to vote at the company's annual general meetings (AGM).

Secondly, there are assets, which consist of 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.

Moreover, the text says that most shares have a nominal value, which shows the asset value of the company. Increasing the nominal value of the action reflects the future profits of the company. The text also mentioned the non-voting shares, known as “preference shares” or “preference stock”, which entitled the shareholder to a fixed periodic income, but generally do not give him or her voting rights. The purpose of this type of shares is that the firm´s control is over the founding family. However, these type of shares have had limited success because they have little value and few investors want to have them.

Another concept that the text mentions is the dividend and its covers. The dividend of the company is the share of profits paid to shareholders, according to the number and class of stock. The remaining part of the profit is earmarked for expansion and growth of the company. Also it can be used as reserves to be available when the profit decreases. The cover is the measure of a firm's ability to pay its dividend, i.e. the number of times the company can pay the net dividend.

The price to earnings ratio is a common measure of how highly a firm´s share is valued. Also it measure how many time of earning per share would we need to pay a share. The formula is to divide earnings by the number of shares in existence. Not all profits are distributed as dividends, but it is expected that over time, earnings will increase, causing it to become all benefits.

Finally, we must talk about yield. Is an important measure of a company's performance. Is usually expressed through percentage net, changing in each country. Normally, the yield is lower than the interest we can get through local bonds. The lower return in shares reflects growth of dividend payouts.

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