A share is the smallest unit that a company can be divided into. When a business wants to raise capital to expand, it offers a portion of its ownership, in the form of shares, to investors. The founders decide what percentage of the shares to keep among themselves, and how many to offer investors.
Depending on the needs and size of the business, shares can be sold privately or publicly. To offer shares publicly, the company needs to be listed on a stock exchange like the Johannesburg Securities Exchange (JSE).
If a company is worth R12 500 000 and is divided into 5 000 shares, then each share is worth R2 500. The business can decide to keep 3 000 shares (60%) internally and only offer 2 000 (40%) shares to investors. If all those shares are sold, a total of R5 000 000 in capital can be raised.
What Are Dividends?
Dividends are regular payments that a company makes to its shareholders. They are a portion of the profits and are decided on by the board of directors. They are usually in the form of cash, but can also be paid as additional shares. This often happens when the company is not able to pay out cash.
Whether in cash or bonus shares, dividends are paid per share. For example, if the company pays out R30 per share, and you own 50 shares, you will receive a total income of R1 500. Dividends are generally paid out in periods of 3, 6 or 12 months.
How Can You Buy Shares on the Stock Market / Securities Exchange?
To invest in the stock market, you need to open an account with a stockbroker. It is through the broker that you will be able to buy and sell shares. This comes with brokerage fees such as a commission for every transaction made.
Shares have a low to medium risk over a long investment period.
Ordinary shares have the highest risk because the investor can lose all or part of their investment if the company is dissolved, declared bankrupt or gets liquidated.
Preference shareholders have a lower risk because they have a preferential claim on the company assets in the event of bankruptcy or liquidation and receive compensation before ordinary shareholders.
Share prices are linked to factors beyond the control of investors, such as national and international economic conditions.
The value of the investment is uncertain in the short term because share prices are unpredictable. They can rise and fall in seconds.
Dividends are determined by the management or directors of the business.
Shareholders may receive little to no dividends if the company performs poorly.
Companies are not legally obliged to pay dividends to shareholders.
Other Useful Articles
Definition of Human Rights and their Implication in the Workplace
Examples of Economic, Social and Cultural Rights in South Africa
How to Promote Social and Cultural Rights in the Workplace
What Are the Benefits of Diversity in the Workplace?
How to Deal with Diversity Issues in the Workplace
Test Yourself
Now it is time for you to test your knowledge. Download the quiz cards below and practice answering these NCS exam questions. Share them with your friends and test each other online. You will find more images like this, and other Grade 12 Business Studies notes, on my Facebook page:Nonjabulo SA.
1. Help your client make the best investment decision by explaining the benefits of investing in shares.
2. Analyse the risk factors of shares as a form of investment.
Shares present risks and benefits. The chief risks being capital loss, price volatility and no guarantee of dividends. Benefits of shares include the opportunity for capital growth, dividend income, flexibility and control. The price of anything that can be bought or sold is unpredictable to some extent.
To hedge against rising inflation in this economy, investment in stocks can be advantageous. Historically, it has been seen that the returns on stock beat inflation rates. Rising prices can lead to more profit for companies, which in turn can boost share prices.
What are the benefits and risks of stocks? Stocks offer investors the greatest potential for growth (capital appreciation) over the long haul. Investors willing to stick with stocks over long periods of time, say 15 years, generally have been rewarded with strong, positive returns.
Equity shares have both advantages and disadvantages. One advantage is that they offer greater returns than fixed-income investments such as savings accounts, bonds, debentures, and deposits. However, they also carry greater risk, especially if you do not choose your stocks wisely.
The infusion of capital access to expertise and enhanced reputation are among the notable benefits. However, the potential loss of control, dilution of ownership, shareholder expectations and disclosure requirements must weigh against these benefits.
The level of risk associated with a particular investment or asset class typically correlates with the level of return the investment might achieve. The rationale behind this relationship is that investors willing to take on risky investments and potentially lose money should be rewarded for their risk.
Investing in stocks offers the potential for substantial returns, income through dividends and portfolio diversification. However, it also comes with risks, including market volatility, tax bills as well as the need for time and expertise.
Liquidity.Typically, common shares can be bought and sold more quickly and easily than other investments, such as real estate, art or jewellery. This means investors can buy or sell their investment for cash with relative ease. Advantageous tax treatment.
Potential capital gains from owning a stock that grows in value over time. Potential income from dividends paid by the company. Lower tax rates on long-term capital gains.
Buying shares can build your wealth over time. Like other investment options, there is risk involved, so you need to choose carefully. Find out how to research companies, buy and sell shares, and find a broker. And how to diversify and keep track of your portfolio.
Investing in stocks offers the potential for substantial returns, income through dividends and portfolio diversification. However, it also comes with risks, including market volatility, tax bills as well as the need for time and expertise.
The main advantage of equity financing is that there is no obligation to repay the money acquired through it. Equity financing places no additional financial burden on the company, however, the downside can be quite large.
High-risk investments may offer the chance of higher returns than other investments might produce, but they put your money at higher risk. This means that if things go well, high-risk investments can produce high returns. But if things go badly, you could lose all of the money you invested.
The biggest difference between saving and investing is the level of risk taken. Saving typically results in you earning a lower return but with virtually no risk. In contrast, investing allows you the opportunity to earn a higher return, but you take on the risk of loss in order to do so.
Stock prices are risky and volatile. Prices can be erratic, rising and declining quickly, often in relation to companies' policies, which individual investors do not influence. Stocks represent ownership of a business, and hence investors are the last to get paid, like all other owners.
Downside risk is the potential for your investments to lose value in the short term. History shows that stock and bond markets generate positive results over time, but certain events can cause markets or specific investments you hold to drop in value.
Introduction: My name is Velia Krajcik, I am a handsome, clean, lucky, gleaming, magnificent, proud, glorious person who loves writing and wants to share my knowledge and understanding with you.
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