Stock Market Notes – FV, Dividend, Bonus Shares, Stock Splits, QIP, ADR & GDR
FV (Face Value)
The face value of the company is the virtual origin share price of the company when compared to is Current Market Price.
Most of the companies have FV 10.
When the FV of the company is more, then there is tremendous scope for growth in the company, such companies are fundamentally strong.
When is termed as ‘issue at par’, it means that the company is issuing shares at Face Value.
Whenever a company makes excess profits and uses only the part of the profits for expansion, then the rest of the money it distributes amongst the shareholders in the form of tax-free dividends.
Div % is the % regarding FV of the company.
Eg: If the FV of the company is 10 Rs. and it has declared a dividend of 20%, then the shareholders will get Rs.2/share.
There are two types of dividend:
1. Annual: Once in a year
2. Interim: Anytime during the year and any number of times it can be declared.
Note: The company which pays dividend consistently over years is very much investor friendly.
Eg. Sree Sakthi Paper.
Div. Yield (%): It is the percentage return from the current market price of the company through the current financial year dividend.
Best site to find out the dividend paying companies:
Industry P/E: This is the average P/E ratio of the competitor (peer) companies. If the P/E ratio of the company is much less compared to the industry P/E, then the company is fundamentally strong.
Price / Book: It is the ratio of the Current price of the company divided by its Book Value.
This figure should be as less possible, then it is considered to be a fundamentally strong company having huge assists.
Eg. when it is 0.1, that means that the company is having the property worth 10 times the CMP (share price)
A bonus is the number of shares increased with the existing ones, without paying anything for the extra shares.
It is given in the form of ratio like,
X: Y; where X is the extra shares offered and Y is the number of shares.
Eg: 1:2, it means that the company has given one additional share for every two held.
The company issues bonus when it thinks that the current price is much below the actual valuation of the company.
During the time of announcement of the bonus the company share price rises and after that the price also gets divided with the ratio of bonus shares issued.
the stock split is done by the company whenever it feels that the price of the company is lesser than the valuation.
The split also multiplies your number of shares like the bonus, but here the face value reduces the ratio of a split.
Eg: a company with CMP Rs.1000 and FV 10 announces split 5:1 means now the CMP of the company becomes Rs.200, FV: Rs.2 and the number of shares are multiplied by 5.
Rights: Company issues Rights whenever it requires capital, in rights the company issues new shares in which only the existing shareholders can apply. Generally, the price at which you get the rights is lesser than the CMP of the company.
It is up to you to apply for the rights or not. Rights must be applied whenever the rights price is lesser compared to CMP.
This again is given in the form of ratio: X: Y, how many new shares X, you can apply for Y number of shares held.
Eg: A company is issuing Rights in the ratio of 1:2 for the price Rs.100 means that you can get 50% extra shares of the company of the existing shares you have, each for the price of Rs.100
Note: The rights have to be applied before the ending date, if there is oversubscription then the shares are allotted in the ratio of subscription done.
The companies that come with a right issue and the issue gets oversubscribed then; the company is considered to be fundamentally strong.
Preference Share Allotment: In this, the company issues new shares to the promoters, the new shares are issued with the 6 months avg. CMP of the company.
Promoters are nothing but owners of the company who have maximum shares of the company.
Note: If the Preference share allotment price is much less than CMP, then the company is not genuine and vice-versa.
Qualified Institutional Placement – In this, the company issues new shares at a determined price to other companies or firms.
Note: If the company is giving the QIP for a higher price compared to CMP, then it is genuine else you cannot trust the company.
ADR & GDR
ADR & GDR (American Depository Receipt & Global Depository Receipt) – In this company issues new shares to American Shareholders and Global shareholders respectively.
They fall into the category of FII.
Note: If the ADR or GDR issues is near to CMP, the company is genuine but if it much less than the CMP, then it is not trustful.