1. Generally, there are 4 ways in which a shareholder benefits from the good performance of a company:-
a) Dividend - received in proportion to existing shares.
b) Bonus shares - gifted in proportion to the number of shares held.
c) Rights issue of shares, debentures etc. - offered at a premium in proportion to existing shares.
d) Share price - increase in the stock market.
2. Today, all stock market players undertake serious research and in-depth share analysis of a company in order to predict its performance and thereby its future share price.
3. However, the company may, at times, not perform as per expectations, or future uncertainties, or the general depressed sentiment of the stock market may push its price down.
4. But, a proper fundamental analysis in selecting a good company reduces the probability of making a wrong investment judgement and therefore minimizes future risk.
5. Following thumb rules would also be handy in benefiting from a company:-
a) Current profits are higher than last year's profits or profits of competitors,
b) Future profit earning potential is very high even if not revealed currently,
c) It is making a turnaround after several years of loss-making operations,
d) Industry itself is showing a turnaround after years of demand recession,
e) It announces a rights issue or declares a bonus issue,
f) It is acquired by, or merges with, a bigger profitable company,
g) Its floating stock held by the trading public is very low,
h) Soaring demand of its shares due to speculative buying by bull operators,
i) Favourable change in government policy or other environmental factors.
6. For an investor concerned with the price of shares which he is holding, the most important yardstick is the company's Earnings Per Share (EPS), i.e. Net Profit/No. of shares.
7. Despite low profits, if a company has very low equity capital, its EPS would be high and hence it's share price too would be high.
8. On the other hand, even if the company's profit earning potential is high, but its equity capital base is large, its EPS and market price will remain low.
9. Therefore, such an investor should avoid companies with a large equity base unless its profits are exceptionally high.
10. For him, it is also better to avoid companies with:-
a) Negative EPS, i.e. loss making companies,
b) High net profits generated through non-business related income,
c) Likelihood of EPS dilution in the near future due to rise in equity base.
a) Dividend - received in proportion to existing shares.
b) Bonus shares - gifted in proportion to the number of shares held.
c) Rights issue of shares, debentures etc. - offered at a premium in proportion to existing shares.
d) Share price - increase in the stock market.
2. Today, all stock market players undertake serious research and in-depth share analysis of a company in order to predict its performance and thereby its future share price.
3. However, the company may, at times, not perform as per expectations, or future uncertainties, or the general depressed sentiment of the stock market may push its price down.
4. But, a proper fundamental analysis in selecting a good company reduces the probability of making a wrong investment judgement and therefore minimizes future risk.
5. Following thumb rules would also be handy in benefiting from a company:-
a) Current profits are higher than last year's profits or profits of competitors,
b) Future profit earning potential is very high even if not revealed currently,
c) It is making a turnaround after several years of loss-making operations,
d) Industry itself is showing a turnaround after years of demand recession,
e) It announces a rights issue or declares a bonus issue,
f) It is acquired by, or merges with, a bigger profitable company,
g) Its floating stock held by the trading public is very low,
h) Soaring demand of its shares due to speculative buying by bull operators,
i) Favourable change in government policy or other environmental factors.
6. For an investor concerned with the price of shares which he is holding, the most important yardstick is the company's Earnings Per Share (EPS), i.e. Net Profit/No. of shares.
7. Despite low profits, if a company has very low equity capital, its EPS would be high and hence it's share price too would be high.
8. On the other hand, even if the company's profit earning potential is high, but its equity capital base is large, its EPS and market price will remain low.
9. Therefore, such an investor should avoid companies with a large equity base unless its profits are exceptionally high.
10. For him, it is also better to avoid companies with:-
a) Negative EPS, i.e. loss making companies,
b) High net profits generated through non-business related income,
c) Likelihood of EPS dilution in the near future due to rise in equity base.