Sunday, July 25, 2010

Some Definitions

Nominal Value (Par Value / Face Value)
This is the value at which the shares will be recorded in the share capital account. The company will pay dividends based on the nominal value of the shares


Market Value
This is the value at which the shares will be treated in a recognize stock exchange

Bonus Issue (Free Issue / Scrip Issue / Capitalization Issue)
This is where the company will issue shares free of charge to existing shareholders based on their current shareholding. Companies will carry out a bonus issue when they have large amounts of undistributed profits or if the company does not want cash out flow by having a cash dividend payment instead of a cash dividend the company can carry out a bonus issue.

Rights Issue
This is where the company will issue shares to the existing shareholders for a fee. The rights issue will also be carried out based on the current shareholding. The rights received from the company will be negotiable instrument because the rights can be separated from the shares and traded. If the rights are to be converted in to shares then the specified amounts should be paid to the company.

Stock Split
This is where the company will cancel the existing shares and convert the shares in to shares with a lower nominal value. A stock split will be carried out if the company has identified that it’s shares are too expensive or the company wants to make the shares available at which time a stock split would be carried out.

Share Consolidation
This will be the opposite of stock split therefore in a share consolidation. The company will add up shares will a lower nominal value and issue shares with a higher nominal value.

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