Finance Share Explained in Simple Terms

Finance share is essentially a way for companies to raise capital by issuing shares to investors.

In essence, a share is a small part of a company's ownership, and when you buy a share, you're essentially buying a tiny piece of that company.

Think of it like owning a slice of pizza - you're not the whole pizza, but you have a share of it.

A finance share is essentially a unit of ownership in a company.

Shares are the building blocks of stock ownership, allowing investors to claim part of a company's residual assets and earnings.

The terms "shares" and "stocks" are often used interchangeably, but technically, "stock" is the financial instrument a company issues, and a "share" is a single instance of that financial instrument.

As a shareholder, you're eligible to claim part of a company's residual assets and earnings, should the company ever have to dissolve.

Owning stocks can be a great way to grow your wealth, but it's not without its risks. There are many potential benefits to owning stocks or shares in a company.

Some of these benefits include increased liquidity, which allows founders and early investors to convert their ownership stakes into cash by selling shares on the open market. This is especially important for those who need to exit their investment.

Public companies can also offer stock options or restricted stock units as part of employee compensation packages, which aligns employee interests with company performance and can be a powerful tool for attracting and retaining talent.

By issuing shares to the public, a company can broaden its ownership base and bring in a diverse group of shareholders with different perspectives, potentially leading to more balanced decision-making.

However, along with the benefits of stock ownership, there are also risks that investors have to consider. A company could technically issue only one share of stock, but there would be significant drawbacks to doing so.

Some risks include the potential for a company to go bankrupt, leaving shareholders with no legal recourse for reimbursement. This is because shares represent ownership, not debt, and there is no obligation for the company to reimburse shareholders if something happens to the business.

If a company does go bankrupt, shareholders may only receive a fraction of their investment back, if anything at all. This can be devastating for those who have invested heavily in a company.

To mitigate these risks, it's essential to do thorough research on a company before investing, and to diversify your portfolio by investing in a variety of assets.

There are two main types of shares that companies issue: common stock shares and preferred stock shares.

Common stock shares provide the purchaser with a residual claim on the company and its profits, offering potential investment growth through capital gains and dividends.

These shares also come with voting rights, giving shareholders control over the business. Shareholders can vote on corporate actions, elect board members, and approve new securities or dividend payments.

Preferred stock shares, on the other hand, typically don't offer much market appreciation in value or voting rights. However, they often have set payment criteria, like regular dividends, making them less risky than common stock.

Common shares are the most widely issued type of stock, providing investors with a residual claim on the company and its profits.

These shares offer potential investment growth through both capital gains and dividends.

Common shares come with voting rights, giving shareholders more control over the business and allowing them to vote on specific corporate actions.

Shareholders can elect members to the board of directors and approve issuing new securities or payment of dividends.

Common stock can include preemptive rights, ensuring that shareholders may buy new shares and retain their percentage of ownership when the corporation issues new stock.

This feature helps maintain the shareholder's percentage of ownership in the company.

Fractional shares allow investors to buy a slice of a stock based on a dollar amount rather than the number of shares.

Traditionally, investors could only purchase whole shares, but fractional shares change that.

For example, if a stock trades at $1,000 per share, an investor with only $100 to invest could purchase 0.1 shares of that stock.

The goal of fractional shares is to make it more accessible for a broader range of investors to buy and sell stock, particularly those with limited capital.

Not all brokers offer fractional shares, so it's essential to check before investing.

Fractional shareholders typically have proportional rights to dividends, but they may not always have voting rights, depending on the broker and the specific arrangement.

A share's value is determined by the price at which it can be sold, considering market liquidity. An actual sale transaction provides the best indicator of a share's "true value" at a particular time.

Market conditions, such as global economy and sector performance, can significantly affect share prices. Investor sentiment also plays a crucial role, with confident investors driving up stock prices.

Revenue growth and earnings growth are key financial ratios used to evaluate stocks, indicating sales performance and operational efficiency. For instance, Jio Financial Services' revenue growth of 1322.97% outperformed its 3-year CAGR of 26.79%.

Here are some share price insights:

Valuation is a crucial aspect of the stock market, and it's essential to understand how shares are valued. A basic premise is that a share is worth the price at which a transaction would be likely to occur if the shares were sold.

The liquidity of markets is a major consideration in determining a share's value. If a market is highly liquid, it means that shares can be easily bought and sold, which can affect their value.

A minority discount is usually applied when valuing a minority shareholding, which is less than 50%. This is because ownership of the shares offers limited control over the business if a majority shareholder holds the majority.

In practice, an actual sale transaction between a buyer and seller is considered the best market indicator of a share's value at a particular time.

Price returns can be a crucial aspect of stock valuation.

Revenue growth is a key indicator of a company's sales performance, and Jio Financial Services has outperformed its 3-year CAGR with an annual revenue growth of 1322.97%.

Stock returns can vary significantly over different time periods, and Shriram Finance has given a 3-year return of 151.44% compared to the Nifty 100's return of 39.6%.

Investors often look at short-term price returns to gauge the performance of a stock, and Shriram Finance's 1-day return was 0.19%, while Jio Financial Services' 1-day return was 1.84%.

Here's a comparison of the 1-year price returns for both companies: Jio Financial Services has a 1-year return of 32.32%, while Shriram Finance has a 1-year return of 46.68%.

The 5-year price returns for Shriram Finance are particularly impressive, with a return of 164.31%.

Tax treatment of dividends varies between tax jurisdictions. In India, dividends are tax free in the hands of the shareholder up to INR 1 million, but the company paying the dividend has to pay dividend distribution tax at 12.5%.

Dividend stripping is a concept in Indian tax laws that aims to prevent tax evasion. The tax laws include provisions to stop dividend stripping, which means taking advantage of tax loopholes to avoid paying taxes on dividend income.

Publicly traded companies are heavily regulated, and their shares are listed on public exchanges through an initial public offering (IPO). This process is expensive, highly regulated, and lengthy, involving fund-raising phases and scrutiny by regulators.

Tax treatment of dividends varies between tax jurisdictions. In India, dividends are tax-free in the hands of the shareholder up to INR 1 million.

The company paying the dividend, however, has to pay a dividend distribution tax at 12.5%. This tax is a significant expense for companies distributing dividends.

Dividend stripping is a concept in Indian tax laws that aims to prevent tax evasion. It's a complex provision, but essentially, it's a way to prevent shareholders from taking advantage of tax loopholes.

There's also a concept of a deemed dividend, which is not tax-free. This can have significant implications for shareholders and companies alike.

Issued shares are the number of shares sold to shareholders and counted for ownership purposes. A corporation might have 10 million authorized shares but only issue 8 million.

Shareholders' ownership is affected by the number of authorized shares, so they may vote to limit that number as they see fit. Shareholders can also agree to increase the number of authorized shares, but this requires a formal request to the state through filing articles of amendment.

The shares of publicly traded companies are listed on public exchanges through an initial public offering (IPO), which is a lengthy and highly regulated process.

As of September 2024, Shriram Finance's ownership structure is dominated by Foreign Institutional Investors (FIIs), who hold a staggering 53.29% of the company's shares. This is a significant increase from the previous quarter, where FIIs held 54.28%.

The company's promoters, on the other hand, hold a relatively modest 25.40% stake in the company. This percentage has remained relatively stable over the past few quarters, with a slight decrease of 0.01% in the latest quarter.

Here's a breakdown of the company's ownership structure as of September 2024:

Overall, Shriram Finance's ownership structure is characterized by a strong presence of FIIs and a relatively stable stake held by the promoters.

A company's authorized shares is the maximum number of shares it's legally permitted to issue, like a technology startup setting its authorized shares at 100 million in its charter.

The number of issued shares is always equal to or less than the number of authorized shares, as a company can issue additional shares through secondary offerings or employee stock options.

In fact, a company can issue a significant number of shares, like the technology startup that issued 50 million shares through its IPO and subsequent offerings.

The number of shares outstanding is equal to the number of issued shares minus any shares held as treasury stock, such as the 5 million shares the company repurchased and now holds as treasury stock.

This means the company has 45 million shares outstanding, which is the number of shares currently held by all shareholders, including company insiders, institutional investors, and the general public.

Corporate actions refer to significant events that can impact a company's ownership and control. Shriram Finance has a Board Meeting scheduled for Dec 23, 2024, which was announced on Nov 21, 2024.

The purpose of this meeting is to discuss a Public Offer of Shares (POM). Shriram Finance also has a history of declaring dividends, with an Interim dividend of 220% announced on Oct 18, 2024, and an Ex-Dividend date of Nov 07, 2024.

In addition to dividends, Shriram Finance has undergone a Stock Split, with an Ex-Date of Jan 10, 2025, and a Record Date of Jan 10, 2025, announced on Oct 25, 2024. This split will change the face value of the company's shares from Rs 10.0 to Rs 2.0.

Here's a summary of Shriram Finance's recent corporate actions:

These corporate actions demonstrate the company's efforts to engage with its shareholders and stakeholders.

As a shareholder, you have a claim on the assets of the company, but only when the company faces liquidation.

In that event, all of the company's assets and liabilities are counted, and after all creditors are paid, you can claim what's left.

This means that creditors are paid before equity holders, and if there are no assets left after the debt is paid, you may receive nothing.

As a result, equity investments are considered higher risk than debt investments because of this order of priority.

MF Ownership is a significant aspect of a company's structure. As of 30 November 2024, Shriram Finance MF Ownership was a notable stakeholder.

The data from 30 November 2024 shows that MF Ownership held a substantial percentage of shares. However, the exact percentage is not specified in the provided information.

Let's take a look at the shareholding pattern of Shriram Finance as of 30 Sep 2024:

These numbers give us an idea of the distribution of shares among different categories.