Information on shares
This MBN information hub contains information on terms related to shares or stocks – what they are, different types of shares, terms used for people who own them, and related financial expressions.
Shares have been around in one form or another for thousands of years. In ancient Rome they existed as a cornerstone of commerce and early corporate finance. These Roman businesses, called ‘Etairia’, were sanctioned by the state and involved a type of shareholder who invested money in specific purposes.
The oldest share certificate we know of belongs to Stora Kopparberg in Sweden. It was issued in 1288, granting the Bishop of Västerås 12.5% ownership. Stora Kopparberg, many believe, is the oldest existing limited liability company in the world.
American Depositary Shares – stocks of companies based abroad that Americans can purchase and sell in the United States. They are bought and sold in US dollars and are issued by American depositary banks, which have an agreement with the foreign issuing corporation. Also called ADS.
Authorized Stock – the maximum number of shares that a corporation is allowed to sell to the public. This limit is stipulated in its Articles of Incorporation (UK: Memorandum of Association).
Bull Market / Bullish Trend – a term used when the prices of shares in a stock exchange are rising. It is the opposite of a bear market. When investors feel ‘bullish’ it means they expect shares to go up.
Champagne Stock – shares that shoot up in value dramatically over a very short period. During that period the value of the stock typically doubles or triples.
Common Stock – types of shares in a company that serve as evidence of part ownership. Common shareholders in most cases can vote on who become members of the Board of Directors, and other matters related to policy and strategy. Also known as voting shares. Called ordinary shares in the UK.
Cross Holding – when a publicly-listed company has shares in another company listed in the same stock exchange, that company has a cross holding. Also called cross shareholding.
Cyclical Share – a share that shadows the economic performance of the country’s economy. When gross domestic product is growing strongly cyclical shares do well. On the other hand, when times are tough, as in a recession, cyclical shares suffer. Also called cyclical stock.
Defensive Shares – the opposite of cyclical shares. Defensive shares are much less affected by shifts in the national economy. During an economic boom they don’t usually appreciate as much as cyclical shares. Conversely, they do not suffer declines in a recession.
Diluted Share – a share in a corporation after it has issued more shares. Earnings per share, voting rights, percentage ownership, and sometimes even the shares’ value are ‘diluted’. Just like concentrated orange syrup is diluted when you add water.
Earnings Per Share (EPS) – the amount of profit a corporation allocates to common shares. EPS equals the company’s total profits, minus dividends, divided by the total number of outstanding common shares.
Income Share – a mutual fund share that gives the investor very high dividends in relation to its value. However, these types of shares do not appreciate much. The opposite of an accumulation shares, which give little income but appreciate.
Initial Public Offering (IPO) – the first time shares in a company become available for members of the general public to buy. During an IPO a private company turns into a public one.
International Depository Receipts (IDRs) – a certificate issued by a depository bank, which buys shares of overseas companies and deposits it on the account. These are called American Depository Receipts (ADS) in the United States.
Majority Shareholder – the shareholder that has a controlling interest in a company, i.e. more than 50% of all outstanding common stock (ordinary shares). The majority shareholder can choose who becomes a member of the Board of Directors, and can make policy decisions. Also called a controlling shareholder.
Market Capitalization – equals the price per share multiplied by a company’s total number of shares outstanding. In other words, the net value of shares a public company has issued. It is one of the major factors investors look at when determining stock valuation. Also called market cap.
Non-Participating Preferred Share – these are shares that pay out just a fixed rate of interest. They also have a cap (limit) on how much can be paid out in dividends annually. The dividends are not linked to how well or badly the company is doing. Holders of these this type of share get paid before common stockholders do.
Over-The-Counter Shares – shares belonging to companies that are not listed in stock exchanges such as the London Stock Exchange or New York Stock Exchange. Relatively new or small companies issue over-the-counter (OTC) shares. Also called over-the-counter stocks or over-the-counter securities.
Penny Stocks – these are super-cheap shares. According to the US Securities and Exchange Commission, Penny Stocks trade below $5. They can be extremely volatile.
Price-Earnings Ratio (P/E ratio) – this is calculated by dividing a company’s current share price by its earnings per share. Investors get more earnings for their money if they have stock in a company with a low P/E ratio than a high one.
Preferred Stock – a type of share that has a higher claim on assets and earnings than common stock. Holders are paid a specific dividend before common stockholders get their money. Also called preferred shares.
Red Chip Shares – shares in companies based in mainland China that are listed in the Hong Kong Stock Exchange. Most of these businesses, which are known as ‘red chip companies’, belong to regional or local governments in mainland China. Also called red chip stocks.
Reverse Stock Split – this occurs when a corporation reduces the total number of outstanding shares by merging them. A total of 1,000,000 shares could be reduced to 500,000, 250,000, 100,000 or even fewer. Each share will rise in value proportionally. Companies usually reverse split when they are in trouble. Also called a reverse share split, reverse split or stock merge.
Share – a divided-up unit of value of a company. A certificate showing ownership of part of a corporation or financial asset. If a company is worth $200 million and there are 50 million shares outstanding (issued), then each share is worth $4. As the overall value of the company changes, so does its share price.
Share Capital – the part of the capital of a corporation that came from the issue of shares. In this calculation, the nominal share price is used. Share capital may also refer to a company’s share structure.
Shareholder – a person or any entity that owns at least one share in a company. They are the owners of the corporation – the Board of Directors responds to the shareholders. Also called a stockholder.
Shareholder Rebellion – when the Board of Directors makes a decision and the stockholders disagree, there is a shareholder rebellion. A sizeable minority vote might also be seen as a rebellion. Even if 20% vote against the Board, the press may report it as a rebellion. In some cases the aim could be to oust some Board members.
Shares Outstanding – these are all the shares that a corporation has authorized or issued, and are owned by investors and company officials. Also called outstanding shares or outstanding stock.
Stock Index – a measurement of the value of a part of the stock market, representing either a particular market, sector, a country, the whole economy, or a region. Examples include the FTSE100 and S&P 500. Also known as a share index or stock market index.
Stock Split – when a company increases the total number of outstanding shares. Each share declines in value proportionally. During a stock split dilution does not occur, because each shareholder still has the same amount of money in shares. Also called a stock divide or share split.
Stock Swap – when one company offers a certain number of its own shares for each share of another corporation. This typically occurs when one enterprise plans to acquire another. Also called a share exchange, share-for-share exchange, or stock-for-stock.