Shares are securities that are createdjoint-stock organizations, with the absence of an established circulation period and giving the right to joint ownership (management) of the enterprise and to receive income as dividends, as well as to the share of property left after liquidation activities.
Types of shares
These securities are divided into ordinary (ordinary) or preferred.
Обыкновенная акция – это бумага, которая дает the right to own the property of the issuing enterprise. Their holders can choose individuals on the board of directors and influence key issues, participate in the regulation of an organization’s income (as dividends).
Preferred shares are documentsgiving the right to some privileges compared with the owner of ordinary shares. Privileges can be in the form of obtaining stable dividends of fixed amounts, as well as in the form of a preemptive right to receive balances of the organization’s assets upon liquidation. However, the preferred owners in exchange for these rights are usually deprived of a vote at a shareholder meeting. But at the same time, in case of non-payment of dividends, and this is stated in the Charter of the company, preferred shares give the right to vote to their owners before paying dividends.
Additional shareholder rights
In addition, there are additional rights.common stock in the form of their priority purchase in the new issue. But again, it depends on the company's charter. Consequently, there are many different types of similar securities with one company that have differences in the complex of rights for their holders.
It should be noted that the shareholder is entitled toreceive dividends, but the issuer does not guarantee a mandatory and regular payment. Dividends on ordinary shares, as well as on preferred ones, are often not paid when creditor obligations are not fulfilled, there are losses, or when the payment of dividends may cause the losses themselves.
Categories of ordinary shares
There are 6 investment types of ordinary shares:
• "Blue chips" - popular and especiallyattractive securities. Elite organizations that are in this category, in the usual way, dividend payment is carried out over a long period of time, both in successful and in bad periods.
• Growth stocks are those that have excellentopportunity to increase profits in the future. The profit of the organization is invested in the future development of the production process, and shareholders are paid either small amounts of dividends or not paid at all. The price of such shares is extremely volatile and often fluctuates faster than the prices of other securities.
• Income shares are those that have a profit.on current accounts compete with fixed returns. They are usually with a history longer than that of other securities, and with stable dividend payments (above average size).
• Cyclic stocks are securities of enterprises,whose income depends on the business cycle. In the case of favorable conditions, the income and rate of the securities quickly grow. And vice versa, if the conditions for a business become worse, then the profits and the rate, respectively, go down hard.
• Speculative (risky) securitiesThere are usually new issues with a fairly variable ratio of market price to earnings per share. They do not have permanent success in the market, but they have the potential for a significant increase in rates. Such shares are those that were issued by small enterprises in developing industries, as well as too cheap securities.
• Defensive (protected) shares are suchthat are stable and safe in floating markets. Their cost is quite stable and is least of all declining with a tendency to a decrease in the course. Basically, these papers produce food, pharmaceutical and utility organizations for the production of cost-effective products.
Differences of bonds from ordinary shares
Bond and ordinary share have the following differences:
• Bonds can be issued by any commercial enterprise or state. A common stock is a security that is created exclusively by joint-stock enterprises.
• The value of the bond can not fall below the original, and the shares may be cheaper.
• Interest on bonds is often fixed., and the size of dividends on ordinary shares often varies significantly (or is not paid at all), it depends on the income of the organization.
• Interest on bonds is paid out over a fixed period (it is stipulated in the contract), while shares generate income for an unlimited period.
• The profit on bonds is less in comparison with stocks, but the probability of its receipt is high.
• Interest on bonds is prioritized.right, i.e., they are paid before dividends. Interest is paid by the issuer regardless of the result of the business. The lack of profit will not entail any consequences for the organization with respect to dividend payments, and the lack of funds to pay interest on the bonds forces the organization to sell part of the property or take a loan to pay its debts.
• Bonds do not provide the right to manage an enterprise. The shareholder is one of the owners of the organization, and when buying a bond, the owner becomes a lender.
• In the case of liquidation of the company during the division of property, shareholders receive only the share that remains after payment of all debt obligations, including bonds.
What to choose?
Облигация и обыкновенная акция – это почти opposite in matters of profit making securities. Everyone who wants to purchase such types of papers should make a clear analysis of what he still wants to receive in the final result.
Ordinary stock price
Buyers of ordinary shares are interested in their value.
При выпуске ценных бумаг на рынок собственником organization set the price of the stock. Its cost consists of a set of nominal prices and dividends. Since it is impossible to make a forecast of the development of an organization-issuer for an indefinite period, it is impossible to establish their price for a future period. Consequently, the cost of ordinary shares is the same price that was determined for a specific time period, and it can vary from 5 rubles to several hundred or more, depending on the success of the enterprise.
Favorable acquisition of shares on the stock exchanges (inincluding trading floors) may entail tangible profits for the investor. But there is a certain risk: there is no guarantee of a stable income. The cost of such securities can be affected by various facts: economic instability in the state, volatility of the exchange rate, decrease or increase in demand for some goods and services, change of social and new management.
Dividends on ordinary shares
A common stock is such a valuable paperwhich gives the holder the right to take part in the management of the organization at a shareholder meeting and in the distribution of income. Dividends are paid based on the amount of profit of the organization-issuer. The size of the dividend on ordinary shares is calculated by the board of directors and then ratified at a shareholder meeting. Meeting holders have the right to reduce their size. This type of shares is a rather risky investment process, since in the event of liquidation of the organization, shareholders will receive money only after all payments to creditors and preferred owners are made.
Profit Categories
The joint-stock company informs about the profit that falls on one share in the following indicators:
• basic earnings per share, showing the share in the reporting period for shareholders;
• profit (loss) on a security showing a likely decrease in the level of basic earnings per share in the future reporting period (diluted earnings).
The formula for calculating profit: net profit equals the division of dividends of preferred securities into the number of ordinary shares outstanding.
