Investments. Incorporation (most important)

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Investments. Incorporation (most important)

Lecture notes, cheat sheets

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SHAREHOLDERING

The stock is attractive not only as an investment object. It provides certain benefits to the one who puts it into circulation (the issuer). Therefore, today one of the most common forms of raising capital is corporatization. A joint-stock company is not obliged to return to investors the capital invested in the purchase of shares.

A share is a perpetual security that the issuer is not required to redeem. When issuing shares, the issuer does not assume any financial obligations. Equity financing provides an opportunity to expand share capital on a long-term basis.

A joint stock company does not guarantee the payment of dividends to its shareholders. Without net profit, a joint stock company has no source for paying dividends. The meeting of shareholders may decide to use all the net profit of the current year for the development of production, and postpone the payment of dividends. But we must keep in mind that long-term non-payment of dividends on shares leads to a decrease in the share price and a fall in the market value. The amount of dividends on shares is set arbitrarily (as a percentage), regardless of the amount of profit used to pay them. Therefore, the absolute value of dividend payments will be different. The placement of shares, unlike a loan, does not require the use of collateral or guarantees.

An effective emission policy goes through several stages:

1) the issuer explores the possibilities of their effective placement. It is necessary to investigate the state of supply and demand for shares, the dynamics of the price level, their quotes, sales volumes of shares of new issues and other indicators. An assessment is made of the investment attractiveness of their shares in terms of the prospects for the development of the industry, the competitiveness of their products, the dynamics and level of indicators of their financial condition;

2) the purpose of the issue should be significant in the investment strategy of the enterprise, since it is necessary to pay for raising capital;

3) the volume of emission is determined based on the calculated need to attract own financial resources from external sources;

4) rapid mobilization of equity capital through the issue of shares is possible when they are attractive and accessible to investors;

5) assessment of the cost of the equity capital involved.

The estimated cost of the attracted capital is compared with the actual cost of capital and the average level of loan interest, then a decision is made on the appropriateness of the issue.

The placement of shares can be closed (among previously known investors) and open (effective forms of underwriting).

Author: Kuznetsova S.A.

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