One of a kind, or one of many?
A share or a stock is a security that is not redeemed – the investment can only be realised through a disposal – and whose revenue flows are uncertain. It is in compensation for these two disadvantages that shareholders have a say in managing the company via the voting rights attached to their shares.
The purpose of this chapter is to present the key parameters used in analysing stocks and show how the stock market operates. For a discussion of stock as a claim option on operating assets, refer to Chapter 35, and to find out more about stock as a claim on assets and commitments, see Chapter 32 on company valuation.
This section presents the basic concepts for analysing the value of stocks, whether or not they are listed. Remember that past or future financial transactions could artificially skew the market value of a stock with no change in total equity value. When this happens, technical adjustments are necessary, as explained in Section 5 of this chapter. We will then assume that they have been done.
To familiarise ourselves with basic stock information, let's use the example of Indesit. Looking at the Yahoo! Page on Indesit on 27 May 2011, you would find more or less the following:
Shares are normally issued with one voting right each. For our purposes, this is more of a compensation ...