Ordinary share is ... Bond and common stock

Shares are securities that are created by joint stock companies, with no established period of circulation, and entitle to joint ownership (management) of the enterprise and to receive income as dividends, as well as to the share of property left after liquidation activities. Dividends are the share of net income of a joint stock company, it is distributed among shareholders (shareholders) in proportion to the number of shares available.

Types of shares

These securities are divided into ordinary (ordinary) or preferred.

An ordinary share is a paper that gives the right to own the property of the issuing company. Holders of them can choose persons on the board of directors and influence key issues, participate in the organization's income regulation (as dividends).

Preferred shares are the documents granting the right to some privileges in comparison with the owner of common shares. Privileges can act in the form of obtaining stable dividends of fixed amounts, as well as in the form of a preemptive right to receive the rest of the organization's assets upon liquidation. However, privileged owners in exchange for these rights are usually deprived of votes in the shareholder meeting. But at the same time, in case of non-payment of dividends, and this is stated in the company's Charter, preferred shares are given the right to vote of their owners before paying dividends.

Additional rights of shareholders

In addition, there are additional rights of ordinary shares in the form of their primary acquisition in a new issue. But again it depends on the Charter of the society. Consequently, there are many different types of similar securities from one company that have differences in the set of rights for their holders.

It should be noted that the shareholder is entitled to receive dividends, but the issuer does not guarantee a mandatory and regular payment of dividends. Dividends on ordinary shares, as well as on preferred shares, are often not paid when creditor obligations are not fulfilled, there are losses, or when payment of dividends can cause losses themselves.

Categories of ordinary shares

There are 6 investment types of common shares:

• "Blue chips" are popular and especially attractive securities. Elite organizations that are in this category, in the usual way, pay dividends for a long time and in good times and during bad periods.

• Growth stocks are those that have an excellent opportunity to increase profits in the future. The profit of the organization is invested in the future development of the production process, and the shareholders are paid either a small amount of dividends, or no payment is made at all. The price of such shares is extremely volatile and often fluctuates faster than the prices of other securities.

• Profitable shares are those in which profit on current accounts competes with a fixed yield. They usually have a longer history than the rest of the securities, and with stable dividend payments (above average).

• Cyclic shares are the securities of enterprises whose income depends on the commercial cycle. In the event of favorable conditions, the yield and exchange rate of securities quickly grow. Conversely, if the business environment becomes worse, then the profit and exchange rate, respectively, are intensively going down.

• Speculative (risky) securities are usually in new issues and with a fairly variable ratio of market price to earnings per share. They do not have constant success in the market, but they are characterized by the potential for a significant increase in rates. Such shares are those that were issued by small enterprises in developing industries, as well as too cheap securities.

• Defensive (protected) shares are those that are stable and safe in floating markets. Their cost is quite stable and decreases the least with the tendency to decrease the rate. Basically, these papers are produced by food, pharmaceutical and municipal organizations for the production of economically profitable products.

Differences of bonds from ordinary shares

The bond and the ordinary share have the following differences:

• Bonds can be issued by any commercial enterprise or state. Ordinary share is the security that is created solely by joint-stock companies.

• The value of a bond can not fall below the original value, and shares may become cheaper.

• The interest on bonds is often fixed , and the amount of dividends on ordinary shares often changes significantly (or is not paid at all), it depends on the income of the organization.

• Payment of interest on bonds is carried out during the specified period (it is stipulated in the contract), shares also yield income for an unlimited period.

• Profit on bonds is smaller in comparison with shares, but the probability of obtaining it is high.

• Interest on bonds is a primary right, i.e., they are paid before dividends. Interest is paid by the issuer irrespective of the result of hozdeyatelnosti. Lack of profit does not entail any consequences for the organization with regard to payment of dividends, and the lack of financial means to pay interest on bonds forces the organization to sell part of the property or take a loan for payment of debts.

• Bonds do not confer the right to manage the enterprise. Shareholder is one of the owners of the organization, and when buying a bond the owner turns into a lender.

• In case of liquidation of an enterprise during the division of property, shareholders receive only the share that remains after payment of all debt obligations, including bonds.

What to choose?

Bond and common stock are almost the opposite in matters of profit making securities. Anyone wishing to purchase such types of securities must conduct a clear analysis of what he still wishes to obtain in the end result.

Price of common stock

Buyers of ordinary shares are interested in their value.

When issuing securities to the market, the owner of the organization sets the price of the share. Its value consists of a complex of nominal price and dividends. Since it is impossible to make an indefinite forecast for the development of the issuing organization, it is impossible to establish their price for the future period. Therefore, the value of ordinary shares is the same price that was determined for a specific time period, and it can vary from 5 rubles and up to several hundred or more, depending on the success of the enterprise.

Advantageous acquisition of a block of shares on stock exchanges (including trading floors) can entail a tangible profit for the investor. But there is also a risk: there is no guarantee of a stable income. The price of such securities can be influenced by various facts: economic instability in the state, the variability of the exchange rate, the reduction or increase in demand for some goods and services, the change of social and pro-government management.

Dividends on ordinary shares

An ordinary share is a security that gives the holder the right to participate in the management of an organization at a shareholder meeting and in the distribution of income. Dividends are paid based on the size of the issuer's profit. The amount of the dividend on ordinary shares is calculated by the board of directors and then ratified at the shareholder meeting. Holders at the meeting have the right to reduce their size. Such type of shares are a rather risky investment process, since in the event of liquidation of an organization, shareholders will receive money only upon the fulfillment of all payments to creditors and privileged owners.

Profit Categories

The joint-stock company informs about the profit, which falls on one share, in the following indicators:

• Basic profit per ordinary share, showing the share in the reporting period for the holders of shares;

• profit (loss) on the security, showing a likely drop in the level of basic earnings per share in the future reporting period (diluted earnings).

The formula for computing profits: the net profit is equal to dividing the dividends of preferred securities by the number of ordinary shares in circulation.