Shares & Dividend

To start a big business or an industry, a large amount of money is needed. It is beyond the capacity of one or two persons to arrange such a huge amount. However, some persons associates together to form a company. With the help of experts, the company prepare a detailed plan of the proposed industry and frames rules and regulations regarding its functioning. They then draft a proposal, issue a prospectus (in the name of the company), explaining the plan of the project and invite the public to invest money in this project. They, thus, pool up the required funds from the public, by assigning them shares of the company.

Capital The total amount of money needed to run the company is called the capital

Shares The whole capital is divided into small units, called shares.

For each investment, the company issues a share certificate, showing the value of each share and the number of shares held by a person.

The person who subscribe in shares is called a share holder.

Dividend The annual profit distributed among share holders is called dividend.

Dividend is paid annually as per share or as a percentage.

Nominal Value of a Share (N.V) – The value of a share printed on the share certificate is called its ‘Nominal Value’ or ‘Face Value’ or ‘Par Value’

Dividend is always reckoned on the face value of a share.

Market Value of a Share (M.V) – The shares of different companies can be bought or sold in the market through stock exchange.

The price at which the share is sold or purchased in the market through stock exchange is called its Market Value.

A share is said to be –

(i) At premium or Above per, if its market value

(ii) At par, if its market value is the same as its face value

(iii) At Discount or Below par, if its market value is less than its face-value

Example - (a) If $100 share is quoted at a premium of $25, then market value of 1 share is -                                                                                                                                              = $(100 + 25)

= $125

(b) If $25 share is quoted at a discount of $6, then market value of 1 share = $(25 – 6) = $19

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