Question

EXPLAIN FEATURES AND CHARACTERSTICS OF EQUITY FROM MY FINANCE 101 , BOOK PRINCIPLE OF FINANCE AUTHOR SCOTT BESLEY 6e. THE READING OF THE TEXT IS CHAPTER 2 . I READ THE CHAPTER ,TOPIC OF EQUITY READING IS ON PAGE 36-38. JUST DONT UNDERSTAND HOW TO ANSWER IT . MAY NEED TO GOOGLE SEARCH NEED A SHORT ANSWER FOR "EXPLAIN FEATURES AND CHARACTERSICS OF EQUITY". IF IT'S HARD TO ANSWERaM GIVEN OTHER 5 QUESTIONS TO ANSWER JUST NEED TO CHOOSE ONE DOESN'T NEED TO BE THIS ONE.

A OTHER CHOICE THAT CAN BE EASIER IS THE QUESTION WHAT BONDS RATING ARE AND WHY THEY ARE IMPORTANT? ALSO IN CHAPTER 2

Question is : Explain features and characteristics of Equity

Answer 1

Answer

Below are the features and characteristics of shares:

Voting rights

When a buyer buys shares of any particular company he is then regarded as the shareholder of such company by virtue of such purchase and gets the right to deliver his intention through voting in the shareholders meeting pertaining to matter of the corporate affairs whatever quantity of shares he is holding of such company.

Ownership Rights

When an investor invests in a particular company by way of purchasing shares then as per Company Act he becomes one of the owners of such company. When a company declares dividend out of its profit the shareholders are entitled to get the portion of dividend amount according to the holding of shares. Moreover, the shareholders may claim the portion of assets owned by the company by virtue of ownership rights of the shareholders. Since such assets are used to create profit for the company and when such generated profit is further invested by the company to purchase any new equipment which brings profit in the future so any shareholder may claim the portion of assets as these assets brings profit to the firm and shareholders have the privilege to get the portion of profit by way of dividend from the firm so shareholders may claim the portion of assets of the firm.

Par Value

It refers per share price of a particular share for the shareholders. Par value is generally given in the charter of a company. Par value is also known as face value or nominal value. Par value of share and market value of share are different as it is already said that Par value is laid down in the charter of the firm however, market value is the current market price of the share. The total value of shares is calculated by multiplying par value per share with the total number of issued shares of the firm.

Right Shares

It refers to the right of the existing shareholders of the firm to subscribe the newly issued shares by the firm for these shareholders. It is done by the company when the management body of the firm intends to provide the opportunity to the existing shareholders to subscribe to the new shares in lieu of introducing such shares to the public. Suppose the ratio of right shares is shown 5:1 it means any shareholder has the right to subscribe to one new shares by holding five shares of the firm.

Transferable mode of operation

As per the rules of Company Act shares are transferable from one holder to the other. There is no restriction that once the share is purchased cannot be sold to the other intended buyer. So when a new buyer purchases a share at a mutual price from the seller he may register his name as the owner of such share replacing the name of the seller.

Liability

When a share is purchased of a firm a shareholder possesses the status of limited liability. It means the portion of liability is equivalent with the portion of nominal value of the shares held by the shareholder. It does not put the burden to shareholder to bear any acts and omission done by the firm as firm is a separate entity to its shareholders.

Earning Potentiality

Earning potentiality of share refers to the dividend earnings for the shareholders which indicate how much capital appreciation is made by a shareholder by virtue of holding the share of a particular firm. Any company which makes profit from its operation may only declare dividend out of such profit. Therefore, the larger amount of profit generally provide better amount of dividend to the shareholder which is measure of earning potential of a share.

Purchasing power risk

There are several ways to know the value of a firm and one such way is credit rating. Credit rating may cause to change the market value of shares of a firm. Purchasing power risk signifies that inflation is one such determinant which must be considered to find out the price of any goods or commodity. When rate of inflation is high it reduces the value of the purchasing power by which the price of goods gets increased. It is also responsible to decrease the credit rating of a firm which put adverse impact on the price of the share in the market.