Ordinary or Common Share
Ordinary shares are securities issued in such a way that after the company distributes dividends at the prescribed rate to the preferred shareholders from the profits earned, dividends are distributed from the remaining amount. Investors who invest in ordinary shares get ownership of the company concerned according to the amount of their investment and they are considered as the owner of the company. As the owner of the company, ordinary shareholders have to bear more risk.
The rate of dividend paid on ordinary shares is not fixed and may fluctuate according to the fluctuation of the company's earnings. On the other hand, just because a company makes a profit does not mean that ordinary shareholders receive dividends, that is, it does not have to pay dividends on ordinary shares. But the more profits a company makes, the more likely it is to receive dividends. The company may also distribute bonus shares to ordinary shareholders in the form of dividends. In case of liquidation of the concerned company, only the ordinary shareholders can claim the remaining amount after paying the amount due to the debenture holders and preference shareholders. For this reason, investing in ordinary shares is considered risky. Only for aggressive investors who are willing to take more risks to get higher returns, securities tools like ordinary shares are considered suitable.
According to the currently prevailing system, the face value of ordinary shares is usually Rs. 100. Even if the company concerned has to bear a large liability in case of liquidation, the liability of the ordinary shareholders is limited to the amount they have invested and they do not have to bear it from their household.
If a company has already issued ordinary shares to the public in the past, if it issues ordinary shares again in the future, the existing shareholders get the first right to purchase such shares. As such shares are the first right of the existing shareholders to be re-issued, such shares are called entitled shares. Existing shareholders are free to decide whether or not to purchase rights shares. Existing shareholders are entitled to purchase the right shares in proportion to the shares they have previously purchased.
Preference shares are shares issued by the company to distribute dividends at a fixed rate from the profits earned. It is called a preferential share because the company has the prerogative over the ordinary shareholder in respect of dividends. Even if such a company goes into liquidation, the shareholders have priority in terms of receiving their investment and accumulated dividends. For this reason, investing in preferential stocks is considered relatively less risky. However, if the company concerned fails to make a profit in any given year, the preferred shareholders cannot receive dividends at the prescribed rate. On the other hand, no matter how much profit the company earns, the preferred shareholders cannot receive more dividends than the prescribed rate. Thus, investing in preferential stocks has less risk and less return. Preferred shareholders are not allowed to attend the company's annual general meeting unless they are discussing issues related to their rights. Preference shares are considered hybrid security because they are characterized by both ordinary shares and debentures.
Preferential shares are accumulative (to be paid from next year's profit with dividend accumulated when the company is unable to pay dividends in any given year) or unsustainable, redeemable (repayable after a certain period of time) Are of nature.
Debentures are securities issued on the condition that the principal and interest are paid at the prescribed rate and time. Its face value is generally Rs. 1000. Debentures receive interest on their investment at a fixed rate annually or semi-annually. Debentures receive interest before they pay dividends on ordinary shares and preferred shares. Even if the organization goes into loss, there is no obstacle for the debenture holders to get the fixed interest. The relationship between the debenture holder and the organization is like that of a lender and a debtor. If the company is unable to pay the interest at the prescribed rate and time, the debenture holders can take action to send the company to liquidation. Investors who do not want to take risks (risk averter) often prefer to invest in debentures. Debenture holders do not have the opportunity to attend the company's annual general meeting and the right to vote.
Debentures are secured (secured by company assets or mortgaged) or unsecured, redeemable (repaid after a certain period of time) or irrevocable and convertible (can be converted into ordinary shares after a certain period of time) or unchangeable in nature.
Dividend / Bonus Share
The dividend is the return given to the shareholders from the profit earned by the company. If such dividend is paid in cash, it is called cash dividend and if it is paid in shares, it is called bonus share or stock dividend. In order to capitalize the company's savings or reserves, the existing shareholders are thus given additional shares (bonus shares) or the paid-up capital is increased. The amount of dividend is decided by the board of directors.
A warrant is a securities instrument issued to purchase ordinary shares at a specified number and price at a given time. In other words, a warrant is a right given to investors to buy ordinary shares of a company in the future. Generally, warrants are issued along with the bonds to make the issuance of the bonds attractive to the investors. Investors are free to decide in the future whether to take ordinary shares or not using the warrant. Exercising, it turns into ordinary shares, but bonds remain the same. The issuance of a warrant discloses the price to be paid for the purchase of ordinary shares in the future (Exercise Price), the ratio of ordinary shares to be obtained using the warrant (Exercise Ration) and the expiration date of the warrant.
Blue Chip Share
Blue Chip Share is the name given to an organization that has been making profits for a long time by efficiently managing the organization and paying dividends to the investors as well as winning the trust of the investors by being aware of the accountability towards the investors. Most of these types of shares have a high price and the dividend is medium.
A securities dealer who buys and sells securities on behalf of a customer is called a securities broker.
Merchant Bank is an organization that manages the primary issuance of securities, guarantees and collects applications and details for securities transactions.
A securities trader is a person who buys or sells all or some of the securities issued in the primary market and sells them through the stock market and manages the investment by entering into an investment agreement with the customer. A securities dealer buys and sells securities through a customer or a securities broker in his own name.
A market maker is an institution that buys and sells securities in its own name for the purpose of providing liquidity in debentures or collective investment schemes or listed securities issued on the security of the Government of Nepal.
An organization is responsible for keeping records of securities transactions of organized organizations and for taking care of all the work related to rejecting or registering the filings and updating the information of the shareholders.
Central Depository System of Securities
The central depository system of securities is a system that takes care of the securities of all the securities holders and helps them to complete the process of purchase and sale record, transfer, transfer, etc. in a simple and quick manner. Under this system, securities holders can open an account by depositing their securities just like depositors keep money in a bank. This system eliminates problems like loss of securities, loss, theft, issue of counterfeit shares. This system also helps reduce transaction costs.
If there is no sale of securities to be issued in the primary market, the agreement to buy such securities is called a securities guarantee.
Before issuing securities in public, the concerned organization should publish the statement. The prospectus discloses the details related to the organization that wants to issue the securities and helps the investors to decide whether to invest in the securities of the organization or not on the basis of those details.
Over Subscription and Under Subscription
The demand for more securities is called high demand for securities and the low demand for securities is called low demand for securities. In case of high demand for securities, there is a provision to distribute the securities by giving more weight to the group demanding less and less to the group demanding more securities.
The difference between the issue price and the face value is called the premium. The issue of securities at a price higher than the face value of the securities is called securities issuance in Premium.
Bid and Offer Price
The price of the securities that a potential buyer wants to pay is called the offer price. After receiving the Bid Price / Offer Price marked by the securities brokers on the trading board of the securities market, the purchase and sale of securities are completed.
Paid-up value of listed securities
The sum of the value of the listed securities paid by all the securities holders is called the paid-up value of the securities.
Market capitalization is the sum of the market value of all securities listed on the stock exchange market. Market capitalization is obtained by multiplying the number of securities listed in the market and their respective market value.
The market indicator is the ratio between today's total market value of listed securities and the total market value of a given year. This indicator increases when the value of listed securities increases and decreases when it decreases. Nepal Securities Exchange Market Ltd. in Nepal. Produces this type of indicator each day, called the NEPSE Index.
Market Price Per Share
The market value of a stock is called the market price per share.
Earning Per Share
Earnings per share are obtained by dividing the company's net profit by the total number of shares of the company. Earnings per share provide a significant measure of profit for shareholders and individuals outside the company. A company with rising earnings per share is considered to be successful in performance while declining earnings per share are considered a sign of a problem.
The total value of the company's paid-up capital and total reserves is the company's net worth. Dividing the net worth by the total number of shares of the company gives the net worth per share or the book value of the shares.
Price Sensitive Information
Price sensitive information is the announcement made by the company regarding dividend distribution or bonus share issue, change of management, expansion plan, financial quantities, important agreements with other parties and events directly affecting the price of securities and other information.
As per the rules, the securities are to be made public to the investors of the company but the securities are not made public. This type of transaction is prohibited by the prevailing system.
Bear and Bull Market
The bull market refers to the gradual emergence of the market. In this type of market, along with the improvement of every sector of the economy including industry, banking, insurance, the company's profits have gradually increased due to efficient management. At this time the share price of listed companies is higher. On the other hand, the bear market refers to the downtrend of the stock market. In this situation, the market price and market index of listed securities are on a downward trend and there is an atmosphere of frustration among investors.
Directors and Board of Directors
The people who are responsible for managing the entire business of a company, exercising their rights and fulfilling their duties are the directors of the company. The directors of the company are appointed by the founders until the first annual general meeting and then by the general meeting. In order to be the operator of any company, one has to take the shares as prescribed in the rules of that company.
Annual General Meeting
The annual general meeting is called by the company to inform the shareholders about the work done during the year, achievements, problems and future plans as well as to pass the annual accounts of the company, appoint an auditor and approve other important issues. According to the prevailing rules in Nepal, such a meeting has to be convened within six months of the end of each fiscal year.
A representative is a person who has not been able to attend the annual general meeting of the company in person and has been given the right to vote by signing a petition in the prescribed format. A shareholder of any company can only nominate another shareholder of the same company as a representative.