Shares and Dividend – Summery Notes

 Shares: In order to run a business several persons join together to form a joint stock company.
The total money invested by the company is called its capital stock. The capital stock is
divided into a number of equal small parts. Each such part is called a share.
 Shareholder: A person who purchases one or more shares is called a shareholder.
There are generally two types of shares:
(i) Preference shares (ii) Equity shares
 Face Value: The original value of a share stated in a certificate is called its face value (FV).
The face value of a share is also called the register value, printed value or nominal value (NV).
 Market Value: The price at which a share can be bought or sold in the market is called its
market value (MV). The market value of a share changes from time to time.
 If the market value of a share is the same as its nominal value, the share is said to be at par.
 If the market value of a share is more than its nominal value, the share is said to be above par
or at a premium. For example, if a share of Rs. 100 is selling at Rs. 135, it is said to be selling
at a premium of Rs. 35 or at Rs. 35 above par.
 If the market value of a share is less than its nominal value, she share is said to be below par
or at a discount. For example, if a share of Rs. 100 is selling at Rs. 88, its is said to be selling
at a discount of Rs. 12 or at Rs. 12 below par.
 Dividend: A company finalizes its account at the end of 12 months period. At that time its
declares the profit made by it during the preceding year which is to be divided among the
shareholders. The profit which a shareholder gets for his investment from the company, is
known as dividend.
 The dividend is always expressed as a percentage of the nominal value of the share.
 The dividend is always calculated on the nominal value of the share whatever the market value
of the share may be.
 Debentures: When a company needs money for its expansion or diversification, it issues
bonds, called debentures.
 Brokerage or Commission: Stockbrokers, who bought and sold shares through agents,
charge a certain amount, or in percentage for their services from the buyer as well as the seller.
This amount is called brokerage or commission. Brokerage is calculated on the market value
of the share.
 Some Important Formulae:
 Sum invested = Number of shares  MV of 1 share
 Income per share = Dividend %  Nominal value of 1 share
 Annual income = Income per share  Number of shares
Totalinvestment
 Number of shares  , when shares are purchased from the market.
Market value of 1share
 Total nominal value
 , when shares are allotted by the company.
Nominal value of 1share
Totalincome

Nominal per share
 Dividend 
 Rate of return   100  %
 Investment 
Dividend %  No.of shares  NV
 Annual dividend 
100
 “15% of Rs. 100 shares at Rs. 145” means the:
 Face value of one share is Rs. 100.
 Market value of one share is Rs. 145.
 Dividend (i.e., profit) on one share is 15% is Rs. 100, i.e., Rs. 15 p.a.
 Income on Rs. 145 is Rs. 15 for one year.
 15 
 Rate of return p.a. is  100  % .
 145 
 “12% of Rs. 25 shares at a discount of Rs. 5” means the:
 Face value of one share is Rs. 25.
 Market value of one share is Rs. (25 – 5) = Rs. 20.
 Dividend on one share is 12% of Rs. 25 = Rs. 3 p.a.
 Income on Rs. 20 is Rs. 3.
 3 
 Rate of return p.a. is  100  %  15% .
 20 