A project on Shares and Dividends

Shares : In financial markets, a stock is a unit of account for various investments. It often means the
stock of a corporation, but it is also used for collective investments such as mutual funds, limited liability
companies, and real estate investment trusts. Companies issue shares that are offered for sale to increase
share capital. The owner of shares of the corporation is a shareholder (or shareholder) of the corporation.
An action is an indivisible unit of capital, expressing the ownership relationship between the company and
the shareholder. The denominated value of a share is its nominal value and the total of the nominal value of
the shares issued represents the capital of a company, which may not reflect the market value of such
shares. The income received from ownership of shares is a dividend. The process of buying and selling
stocks often involves going through a broker as a middle man. Stocks are valued according to different
principles in different markets, but a basic premise is that a stock is worth the price at which a transaction
would likely occur. Stocks were to be sold. The liquidity of the markets is an important consideration as to
whether an action can be sold at any given time. A real sale transaction of shares between the buyer and
the seller is generally considered to provide the best prima facie indicator of the market as to the "true
value" of the shares at that particular time.

Value of shares
The original value of a share printed in the certificate of the share is called itsface value or nominal value (in
short, NV). The NV of a share is also known as register value, printed value and par value. The price at
which the share is sold or purchased in the capital market through stock exchanges is called itsmarket
value (in short, MV).
A share is said to be:
At premium or Above par, if its market value is more than its face value.
At par, if its market value equals its face value.
At discount or Below par, if its market value is less than its face value.
The share of a company that is doing well or expected to do well is sold in the market at a price higher than
its NV. In such a situation, we say the share is at premium or above par. For example, if a share of NV of
Rs 10 is selling at Rs 16 then the share is at a premium of Rs 6. The share of a company that is neither
doing well nor poorly is sold in the market at a price equal to its NV. For example, if a share of NV of Rs

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100 is selling at Rs 100 then the share is at par. The share of a company that is doing poorly or may do
poorly in the future is sold in the market at a price lower than its NV. In such a case, we say the share is at
a discount or below par. For example, if a share of NV of Rs 100 is selling at Rs 80 then the share is at a
discount of Rs 20.
Types of shares
Ordinary Shares :These represent part ownership of the firm and may pay out dividends from time to time.
They give the owner the right to attend and vote at the Annual General Meeting (AGM) of the firm, so you
will have a say in how the company is run. However, if the company becomes bankrupt, the firm will pay off
all other creditors before reimbursing ordinary shareholders with any remaining funds. Ordinary shares are
the most common type of shares.
Preference Shares :Some companies for a variety of reasons have issued preference shares. These have
special rights attached to them that vary from company to company. In general, preference shares give
holders preference in either dividend allocations or voting rights or both. They will certainly pay out before
ordinary shares in the event of a company being broken up.
Bonds :Sometimes a firm will issue bonds (also called debentures) in the company. Bonds are different
from shares in that they represent a part of the company's debt, not a part of the ownership of the
company. They confer no voting rights at all, but they do get paid out before shareholders in case of
bankruptcy.

Dividends : A dividend is a payment made by a corporation to its shareholders, usually as a distribution

of profits. When a corporation earns a profit or a surplus, the corporation may revert the profit to the
business (called retained earnings) and pay a proportion of the dividend benefit to shareholders. The
distribution to shareholders may be cash (usually a deposit into a bank account) or, if the corporation has a
dividend reinvestment plan, the amount can be paid by issuing new shares or repurchasing shares.

A dividend is allocated as a fixed amount per share, with shareholders receiving a dividend proportional to
their shareholding. For a corporation, paying dividends is not an expense; Rather, it is the division of profits
after taxes among shareholders. Retained earnings (profits that have not been distributed as dividends) are
shown in the equity section of the company balance sheet, as well as its issued share capital. Public
companies often pay dividends on a fixed schedule, but they can declare a dividend at any time, sometimes
called a special dividend to distinguish it from fixed-time dividends. Cooperatives, on the other hand,
allocate dividends according to the activity of the partners, so that their dividends are often considered as
an expense before taxes. In the world's financial history, the Dutch East India Company (VOC) was the first
(public) registered company to never pay regular dividends (dividends). The VOC paid annual dividends
amounting to about 18 percent of the value of the shares during almost 200 years of existence (1602-
1800).
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Dividend, Rate of Dividend
The part of the annual profit of a company distributed among its shareholders is called dividend. The
dividend is always reckoned on the face value of a share irrespective of its MV.
The rate of dividend is expressed as a percentage of the NV of a share per annum.
Meaning of the statement r% Rs 100 at Rs M
The statement r% Rs 100 shares at Rs M means the following:
The NV of a share is Rs 100.
The MV of a share is Rs M.
The dividend on a share is r% of NV, i.e., Rs r per annum.
An investment of Rs M gives an annual income of Rs r.

Rate of return per annum = Annual income from an investment of Rs 100

Look at the statement given below:
9% Rs 100 shares at Rs 120 means
Face value (NV) of 1 share = Rs 100.
Market value (MV) of 1 share = Rs 120.
The dividend on a share is 9% of its face value = 9% of Rs 100 = Rs 9
An investment of Rs 120 gives an annual income of Rs 9.

Rate of return per annum = Annual income from an investment of Rs 100

Frequency of dividends
We advise our clients to take a final and an interim dividend like most limited companies. This will be
typically 2 dividends per year ( 4 dividends at most ). However, if you are a small business rather than a
contractor then it is possible to take dividends more regularly.
The directors can only declare a dividend if there are sufficient profits in the business. A director is in
breach of his/her statutory requirement to the business if they authorise a dividend where there is
insufficient profits.
Available Profit
Dividends can be paid from retained profits and or from profits in the current financial year. Retained profits
are the accumulation of previous years profits brought forward.
Timing of dividends
The payment of a dividend to a director is recognised when the payment is made available. For example,
if a dividend is recorded in the company accounts in March and the funds transferred to the directors
current account then the made available date will be March even if the funds are transferred in April.

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