Media pundits and business experts are again beating the drums of bonus shares from Reliance. And we all individuals, without giving the thought, start beating the drum of the bonhomie, and are rejoicing that we are getting something for free. Because it is termed as “Bonus”, it is free and we all should be happy for it. Happy that company management is thinking about shareholders and giving them “Bonus Shares”. Coming from school of “value thinking” I believe this is fools paradise. We have lost our ability to think rationally and then make a judgment call. Let us discuss little bit more….
At regular time intervals, I respond to the question asked by readers of this blog. Many of my post on this blog are inspired by such questions. Today’s post is in response to one such question. It is related to number of equity shares, equity base, and calculating EPS. I will use an example to discussion these aspects. So the question is reproduced below in verbatim.
The nse site, giving financial results,a company mentions about Paid-up Equity Share Capital. Ex For axis bank has 36crore shares ,it mentions equity share capital as 36 crore*10 = 360 crore. What does this mean. because the actual capital raised would be the shares offered to public*ipo price. Will not this be the equity base of a company? and for finding EPS why do we consider the entire number of shares rather than only the number issued to public (since the capital raised would be only that much).
When I form a company, I use my personal capital (i.e invest my own money) into the company and business activities. In the process of forming and registering a new company, according to Companies Act, it needs to be capitalized. Capitalization is the process in which owners have to come with number of shares and its face value.