Investments. Determining stock returns (most important)

Lecture notes, cheat sheets
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Investments. Determining stock returns (most important)

Lecture notes, cheat sheets

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SHARE RETURN DETERMINATION

Share return - the ratio of profit, which falls on one ordinary share, to its market value. The profitability of shares depends on: the growth rate of the market value of the shares; the amount of dividend payment; inflation rates and bank interest growth; the amount of income tax.

The amount of dividends received and the difference in purchase and sale prices are two indicators by which the income on shares is determined.

Dividend - income received by a shareholder from part of the net profit of the current year of the joint-stock company, which is distributed among shareholders in the form of a certain proportion of their nominal value; through a dividend, the shareholder’s right to participate in the profits received by the joint-stock company is exercised.

The dividend is paid in cash, other property at the discretion of JSC (shares). The timing of dividend payments is set by the JSC, they are divided into annual and intermediate. The size of the annual dividend cannot be more than that recommended by the Board of Directors of the JSC, and less than the interim dividend payments. The amount of dividend payments is influenced by the terms of payment, the amount of net profit allocated for the payment of dividends, the proportions of distribution of profits for consumption and accumulation.

The return on capital investment in the acquisition of shares is determined by: the size of dividend payments, fluctuations in market prices for JSC shares, the level of inflation, the tax climate, etc.

The actual market price of a share, expressed as a percentage, is called market value, or course (Ka)

Ka = (Sd / Sp) x 100,

where Cd is the dividend rate; Cn is the rate of bank interest.

Wherein:

SD = (D/N) x 100,

where D is the absolute value of the dividend per share; H is the par value of the share.

The efficiency of investment in a share can be expressed by the relative value:

E = (P1 - P0 + D) / Pd,

where P1 is the purchase price of the share; P0 - sale price; D - dividends received during the holding of the share.

Investment return for the period of holding a share (per annum) can be calculated using the formula:

E = ((P1 - P0 + D) / Pd) x (365 / T),

where T is the period of ownership of the share (in days).

The sale price may be lower than the purchase price and no dividends will be paid for the holding period. In this case, the investor will suffer a net loss and the investment return will be negative.

Author: Kuznetsova S.A.

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