Shares_4610

This text is taken from a book called Investing in Stocks & Shares written by Dr. John White. The text is basically definitions of economic words that are explained in a simple way, in order to make it easier to understand, it is mainly aimed at families.

The words defined are:

Shares: A share is a right to receive dividends that a company will give once or twice a year to its shareholders, and allows the owner to vote in the annual general meeting according to the size of stocks he possesses, the more he owns the more his vote counts.
Assets: the assets are the good that the company owns such as: cash-in-hand, buildings, machines, the stock of raw-materials… less its liabilities that are the borrowings and payments to creditors.
Nominal share value: Is the value of the share when it was first issued by the company, it originally represented the asset value of the company. But equity can increase its value reflecting the potential earnings of a company.
There are also non-voting shares which permit the investor to enjoy the same benefits, but not be able to vote. They were originally created for the founding families to keep in control of the company decisions.
The Dividend and its Cover: the dividend is the proportion of benefits paid to the stockholders. Normally just part of profits are distributed as dividend, the majority of them are retained to fund internal growth of the company or to be used as dividend when there has not been any profit. The cover of the dividend is the number of times the company could have paid its net dividends.
P/E Ratio: when the company’s profits are divided in a number of shares, we get the earnings per share. The P/E (price to earnings) ratio measures the number of years of earnings per share at the current share price that would be needed to pay for the share. After those years, the dividend will be pure profit.
The Yield: it is the return from shares expressed as a net percentage. It is usually lower than the local interest rate.

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