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Financial Dictionary - Shares

Shares

What is a share?

These are the portions of capital into which a company or enterprise is divided for the purpose of raising funds; companies issue them, sell them and obtain financing from them; in fact the shares are part of its equity.

The value of all the shares of a company is its market capitalisation. Each of them gives the holder (also known as shareholder) economic and political rights, allowing him or her to own a piece of the company and partake in profits or vote at shareholder meetings, all based on the number of shares he or she owns.

Types of shares

These may be ordinary shares, which confer upon the shareholder the right to vote at a General Shareholders' Meeting and to receive dividends in accordance with the company's profit distribution policy. This is the most common type. Or they may be preferred shares, if they also confer some additional privilege that gives them priority over ordinary shareholders; mainly, a greater share in the distribution of profits or in the liquidation share. Sometimes this privilege involves the loss of other rights, such as voting rights.

They may be registered, depending on their issue, if they are linked to the holder's name as it appears in the company's shareholder registers. Typically companies in the banking and utilities sectors. They can also be bearer shares if they aren't associated with a name and so don't specify who owns them.

Those with voting rights have the right to attend the Company's General Meetings based on their voting rights. Most listed shares are eligible to vote. However, some shares do not give such a right in exchange for another economic benefit, such as a preference over the preferred dividend or a liquidation share. There may be companies that issue both types.

The authorised ones, according to their amount outstanding, are those issued in line with the company's Bylaws; those outstanding are those in the hands of investors; treasury shares are those repurchased by the company and which remain with it; while issued shares refers to those put into circulation, being the sum of those outstanding and treasury shares.

Lastly, gold shares grant a number of special rights that give the holder greater power over the company. This type is issued for example in privatisation processes.

Other interesting terms

Earnings per share (EPA). It represents the profit or loss of each share based on all shares outstanding. We get it by dividing the net profit by the number of shares.

Dividend yield. This expresses the value of stock dividends. To calculate it, we dividing the annual dividends per share by the market price of the share at a given point in time.

Price-earnings ratio (P/E) represents the market price of ordinary shares divided by EPS.

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