8/4/2019 eshare

1/31

Equity Shares

8/4/2019 eshare

2/31

Equity shares

Preference shares

Deferred shares

Bonus shares

TYPES OF SHARES

8/4/2019 eshare

3/31

Equity shares are those

shares which are ordinaryin the course of company's

business. They are also

called as ordinary shares.

What are Equity Shares?

8/4/2019 eshare

4/31

WHAT IS A DIVIDEND?

video

8/4/2019 eshare

5/31

(1) Owned capital

(2) Fixed value or nominal value

(3) Distinctive number

(4) Attached rights(5) Return on shares

(6) Transfer of shares

(7) Benefit of right issue

(8) Benefit of Bonus shares(9) Irredeemable

(10) Capital Appreciation

FEATURES OF EQUITY SHARES:

8/4/2019 eshare

6/31

I. Long-term and Permanent Capital :It is a good source of long-term finance. Acompany is not required to pay-back the equity capital during its life-time and so, it is apermanent sources of capital.

II. No Fixed Burden :Unlike preference shares, equity shares suppose no fixed burden

on the company's resources, because the dividend on these shares are subject toavailability of profits and the intention of the board of directors. They may not get thedividend even when company has profits. Thus they provide a cushion of safety againstunfavorable development

III. Credit worthiness : Issuance of equity share capital creates no change on the assets ofthe company. A company can raise further finance on the security of its fixed assets.

IV. Risk Capital : Equity capital is said to be the risk capital. A company can trade onequity in bad periods on the risk of equity capital.

V. Dividend Policy: A company may follow an elastic and rational dividend policy andmay create huge reserves for its developmental programs.

ADVANTAGES OF EQUITY SHARES FOR THE

COMPANY:

8/4/2019 eshare

7/31

I More Income: Equity shareholders are the residual claimant of the profits after

meeting all the fixed commitments.

II. Right to Participate in the Control and Management:Equity shareholders have

voting rights and elect competent persons as directors to control and manage

the affairs of the company.

III. Capital profits:The market value of equity shares fluctuates directly with

the profits of the company and their real value based on the net worth of the

assets of the company.

IV. An Attraction of Persons having Limited Income:Equity shares are mostly of

lower denomination and persons of limited recourses can purchase theseshares.

V. Other Advantages:It appeals most to the speculators. Their prices in security

market are more fluctuating.

ADVANTAGES OF EQUITY SHARES FOR

THE INVESTOR

8/4/2019 eshare

8/31

I. Dilution in control: Each sale of equity shares dilutes the voting power of the

existing equity shareholders and extends the voting or controlling power to

the new shareholders. Equity shares are transferable and may bring about

centralization of power in few hands. Certain groups of equity shareholders

may manipulate control and management of company by controlling the

majority holdings which may be detrimental to the interest of the company.

II. Trading on equity not possible:If equity shares alone are issued, the company

cannot trade on equity.

III. Over-capitalization:Excessive issue of equity shares may result in over-capitalization. Dividend per share is low in that condition which adversely

affects the psychology of the investors. It is difficult to cure.

EQUITY SHARES HAVE THE FOLLOWING

DISADVANTAGES TO THE COMPANY:

8/4/2019 eshare

9/31

IV. No flexibility in capital structure:Equity shares cannot be paid back during

the lifetime of the company. This characteristic creates inflexibility in capital

structure of the company.

V. High cost:It costs more to finance with equity shares than with othersecurities as the selling costs and underwriting commission are paid at a

higher rate on the issue of these shares

VI. Speculation:Equity shares of good companies are subject to hectic

speculation in the stock market.

8/4/2019 eshare

10/31

I.Uncertain and Irregular Income:The dividend onequity shares is subject to

availability of profits and intentionof the Board of Directors and hence the

income is quite irregularand uncertain.They may get no dividend even

threeare sufficient profits.

II. Capital loss During Depression Period:Duringrecessionor depression

periods, the profits of thecompany come downand consequently therate

of dividend also comes down.

III. Loss on Liquidation:Incase, thecompany goes into liquidation, equity

shareholders are the worst suffers.They are paid inthe last only ifanysurplus is availableafterevery otherclaim including theclaim of

preference shareholders is settled

EQUITY SHARES HAVE THE FOLLOWING

DISADVANTAGES TO THE INVESTOR

8/4/2019 eshare

11/31

An issue is the process of

offering securities as anattempt to raise funds.

Companies may issue bonds or

shares to investors as a method

of financing the business.

WHAT IS AN ISSUE?

8/4/2019 eshare

12/31

WHAT IS AN IPO?

Video

8/4/2019 eshare

13/31

The basic steps include:- to engage professional advisors- to organize corporate and financial books and records- to identify most appropriate legal and accounting resources- to complete financial audit- to identify investment banking firm- to complete registration statement- to file with Securities and Exchange Commission

- to clear the SEC review and comment process- to complete the public offering- to file with the appropriate stock exchange

PROCESS OF AN IPO

8/4/2019 eshare

14/31

Fixed Price:

Whereinthe priceband of the issue is fixed.

--e.g LGSugarIndustries Limited PublicIssue of 50,00,000 equity

shares of Rs 10/-eachat a premium of Rs 55/- per shareaggregating Rs3250 lacs.

Book BuildingIssue:

Book Building is a price discovery mechanism which is undertaken toascertainand determine the price of the security proposed to be issued

by abody corporate. There is a priceband whichgives thebidder the facility to bid withina

priceband at different price levels.

--e.g NationalThermal Power CorporationLimited wherein thepriceband was fixed between Rs 52 to Rs 62/-

WHAT IS THE MAIN DIFFERENCE BETWEEN OFFER OF SHARES

THROUGH BOOK BUILDING AND A FIXED PRICE ISSUE ?

8/4/2019 eshare

15/31

Book buildingrefers to thecollectionofbids from investors, based ona

floor price, which is indicated before the opening of thebidding process.

the issue price is fixed after thebid closing date.

BOOK BUILDING PROCESS

8/4/2019 eshare

16/31

This process willhelp to discover the demand and the

price of the shares.also, thecosts of public issueare much

reduced and the time taken forcompletion of theentireprocess is much less than the inthenormal public issue.

WHAT IS THE ADVANTAGE OF TAKING THE BOOK-BUILDING

ROUTE?

8/4/2019 eshare

17/31

Nominatea Book Runner

Forma Syndicate of Brokers, Arrangers , Underwriters, FinancialInstitutions, etc.

Submit a Draft Offer Document to SEBI without mentioning Coupon Rateor Price

Circulate the offer Document among the Syndicate Members

Ask for Bids onPriceand Quality of Securities

Aggregateand forward all offers to Book Runner

Run the Book to maintainarecord of Subscribers and their Orders

Consult withIssuerand Determine the issue Priceas Weighted Average ofthe Offers Received

Firmup Underwriting Commitments

Allot Securities Among Syndicate Members

Securities Issued and Listed

Trading Commences onExchanges

STEPS INVOLVED IN THE BOOK BUILDING PROCESS

8/4/2019 eshare

18/31

AFollow-On OfferingMeans

An offering of additional shares after a company

has had an initial public offering.

This sometimes means the company is strapped

for cash. So they need to issue more shares to

pay bills or finance a new project.

WHAT IS AN FPO...?

8/4/2019 eshare

19/31

Issuingrights to acompany's existing shareholders to buy a

proportionalnumber ofadditional securities at agivenprice

(usually at a discount) withina fixed period these Rights are

often transferable, allowing theholder to sell them ontheopenmarket later on.

Arights issue is usually priced below thecurrent market

price of the share listed on the stock exchange.

WHAT IS A RIGHTS ISSUE?

8/4/2019 eshare

20/31

A Bonus issue is an issue ofbonus shares by acompany. Bonus shares

are those shares whichare issued by thecompany free ofchargeas

bonus to the shareholders.They are issued to theexisting shareholders

inproportionto theirexisting shareholdings.

Bonus shares areusually issued in lieu of payment of dividend to the

shareholders

Companies announcebonus shares to :

Increase thenumber ofactive shares to get thecorrect valuationof

shares.

Increase liquidity inthecounter.

WHAT IS A BONUS ISSUE?

8/4/2019 eshare

21/31

A sharecertificate is a written document signed onbehalf ofa

corporation, and serves as legal proof of ownership of thenumber of

shares indicated.It canbe ina physical form or DEMAT ( dematerialized)

form.

DEMATForm of Sharecertificate: The move from physicalcertificates to

electronicbook keeping. Actual stock certificates are slowly being

removed and retired fromcirculation inexchange forelectronicrecording.

WH

AT IS A SH

ARE CERTIFICATE?

8/4/2019 eshare

22/31

Market capitalization is calculated by multiplyingacompany'sshares outstandingby thecurrent market price of one share.

The investment community uses this figure to determiningacompany'ssize, as opposed to sales or totalasset figures.

Frequently referred to as "market cap

Large Cap: $10 billionplus and include thecompanies with the largest

market capitalization.Mid Cap: $2 billionto $10 billion

Small Cap: Less than$2 billion

MARKET CAPITALIZATION

8/4/2019 eshare

23/31

TheTerm literally refers to acompanys move to

repurchase its ownshares. By doing so, thecompany

reduces thenumber of its shares available in the openmarket.

This will lead to therise ofearnings per share (EPS) and the

returnonassets of thecompany, indicators on thebalance

sheet ofan improvement inthe performance of the

company. As an investor, it will meanan increase inhis/herstake inthecompany. A stock buyback is also sometimes

referred to as share purchaseand it is generally considered

to signala potential increase inshare price.

BUY BACK OF EQUITY SHARES

8/4/2019 eshare

24/31

Acompany canbuy back shares eitherusing tender offer or inanopenmarket buyback. Under the first method, thecompany issues a tenderoffer withdetails regarding thenumber of shares that thecompany plansto repurchaseand indicates their pricerange.

Aninvestor keenonaccepting the offerneeds to fill the form mentioningthenumber of shares that he/she wants to tenderand the price desired andsend it back to thecompany.Inmost cases, the price ina tender offerbuyback is higher than the price inthe openmarket.

According to SEBIguidelines, if thecompany has decided to accept yourshares, then it needs to intimate you in15 days after theclosure of theoffer.The otherrouteavailable forcompany is where they slowly buyback their shares from the openmarket.

HOW IS THE BUYBACK PROCESS

CARRIED OUT..?

8/4/2019 eshare

25/31

WHAT ARE FUTURES

CONTRACTS?

Video

8/4/2019 eshare

26/31

What are Stock Futures ?

Stock Futures are financial contracts where the underlying

asset is an individual stock. Stock Future contract is anagreement to buy or sell a specified quantity of underlying

equity share for a future date at a price agreed upon between

the buyer and seller. The contracts have standardized

specifications like market lot, expiry day, and unit of price

quotation, tick size and method of settlement.

STOCK FUTURES

8/4/2019 eshare

27/31

What Does Stock Option Mean?

A privilege, sold by one party to another, that gives the buyer

the right, but not the obligation, to buy (call) or sell (put) a

stock at an agreed-upon price within a certain period or on a

specific date.

In the U.K., it is known as a "share option".

American options can be exercised anytime between the date

of purchase and the expiration date. European options may

only be redeemed at the expiration date. Most exchange-

traded stock options are American.

STOCK OPTIONS

8/4/2019 eshare

28/31

SPLITS

video

8/4/2019 eshare

29/31

A corporate action in which a company's

existing shares are divided into multiple

shares. Although the number of shares

outstanding increases by a specific multiple,the total dollar value of the shares

remains the same compared to pre-split

amounts, because no real value has been

added as a result of the split.

STOCK SPLITS

8/4/2019 eshare

30/31

What Does Reverse Stock SplitMean?

A reduction in the number of a corporation's shares outstanding that

increases the par value of its stock or its earnings per share. The market

value of the total number of shares (market capitalization) remains thesame.

REVERSE STOCK SPLIT

8/4/2019 eshare

31/31

EARNINGS PER SHARE

video