Rich Dad’s Financial IQ Cultivation: Stock Fundamentals

Chapter 4 Stock Dividends and Basic Knowledge of Bonuses (2)
Whether a listed company distributes cash or bonus shares depends on the judgment and forecast of the company's future operating conditions by shareholders holding a majority of shares, because the dividend plan must be discussed and approved by the general meeting of shareholders.However, more than half of the shares in my country's listed companies are state shares, and the representatives of their shares are basically the managers of listed companies.Due to the influence of personal interests, management personnel basically agree with the development and expansion of enterprises, so the phenomenon of bonus shares is very common in the dividend distribution of listed companies in our country.

(Section [-]) Pros and Cons of Allotment
[-]. Allotment of shares is not a dividend.

Dividends are the return on investment by listed companies to shareholders. Its characteristics are: listed companies are givers, shareholders are reapers, and what shareholders reap is the operating profits of listed companies, so dividends are based on the operating profits of listed companies. Yes, no profit no dividends to share.There are usually two forms of dividends for listed companies. One is to give cash dividends, that is, the listed company will return part of the profits at a certain stage (usually one year) to shareholders in cash, so as to return the investment of shareholders; It is to give bonus shares, that is, the company converts the cash dividends payable to shareholders into capital to expand production and operation, and returns to shareholders in the coming year.The allotment of shares is not based on profit. As long as the shareholders are willing, even if the listed company suffers operating losses, the allotment can be made. The listed company is the taker, and the shareholders are the givers.Shareholders make additional investments, and the joint-stock company receives funds to enrich its capital.Although the number of shares held by shareholders has increased after the allotment, it is not a return on investment by the company to shareholders, but a certificate after additional investment.

Why do shareholders confuse allotment of shares as dividends?At this time, my country's stock market and stockholders are still immature.The modern Chinese stock market has been established for a short period of time and is in the period of development and maturity. The scale of the stock market is small and there is a serious shortage of stocks. As long as you buy stocks, you can make money.This reality has greatly stimulated the people's enthusiasm for speculating in the market, and listed companies have taken advantage of this to place new shares at low prices to old shareholders. On the one hand, they have strengthened the company's financial strength and satisfied shareholders' thirst for stocks.

[-]. Allotment of shares and investment options
According to the relevant provisions of the Company Law, when a listed company wants to allot new shares, it should first do so among old shareholders to ensure that the old shareholders' shareholding ratio in the company remains unchanged. When old shareholders do not want to participate in the company's allotment, they can Transfer the allotment rights to others.For old shareholders, the allotment of listed companies actually provides an opportunity to choose additional investment.

Whether the old shareholders choose to allocate shares to increase investment in listed companies can be judged according to the operating performance of the listed company, the investment direction of the allotment funds and the level of benefits.However, in real economic life, besides allotment of shares, shareholders can also realize additional investment by purchasing stocks of other companies, investing in creditor's rights and residents' savings. The key is determined by the investment income.If the return on net assets of a listed company through allotment of shares does not reach the interest rate of residents' savings deposits, it is obvious that the operating efficiency of the listed company is too poor, and its return on investment cannot be compared with that of residents' savings. investment.Of course, when a listed company confirms the allotment of shares, if the allotment certificates cannot be circulated, the allotment will be mandatory, because after the allotment is implemented, the stock will be ex-rights, and the price will drop. If Lao Gudong does not participate in the allotment, he will suffer a decline in market value Loss.The only way to avoid the allotment is to sell the shares before the allotment.

In the allotment of listed companies in my country, due to the non-standard operation of the shareholding system in our country, state shares and legal person shares in listed companies occupy an absolute controlling position. Equity transfers are mandatory to individual shareholders of listed companies.This move is actually a violation of the rights and interests of minority shareholders.

[-]. Allotment of shares and investment risks
In a relatively mature stock market, allotment of shares is not welcomed by shareholders, because corporate shareholders are often a harbinger of poor management or bankruptcy.When a listed company is short of funds, it should first obtain funds from financial institutions to relieve the urgent need.Generally speaking, banks and other financial institutions will not reject the loan request of a well-managed and promising enterprise.And companies that are not well managed have to ask old shareholders for money to tide over the difficulties.Judging from the allotment of shares in my country's stock market in the past two years, some companies with a relatively high proportion of allotment shares often have mediocre and unsatisfactory performance.Of course, there are other reasons for the prevalence of allotment of listed companies in my country. For example, during the macro-control period of the national economy, it is relatively tense, and the scale of loans is controlled, and it is difficult for listed companies to obtain loans from financial institutions.In addition, in terms of the expansion method of listed companies, since it is easier to raise funds through allotment of shares, and because the proportion of tradable shareholders is relatively small, they are irresistible, so allotment of shares has become the best way for listed companies to expand their scale.

For shareholders, allotment sometimes predicts greater investment risks.First of all, according to the relevant regulations of our country, listed companies can have 30% of the allotment quota every year, and if they are not matched, the quota will be wasted.Many listed companies allot shares purely for the purpose of allotment of shares, and the funds raised do not necessarily have suitable projects to invest in.For example, some listed companies, because there is no room for expansion in this industry, use the allotment funds to operate some non-main businesses, and sometimes simply deposit the funds in banks or speculate in stocks and real estate, and these companies do not have advantages in this respect .Secondly, allotment of shares in proportion and at a high premium means using allotment funds to rebuild an enterprise that is almost the same size as the company's existing scale. Sales, whether the company's management level and technical strength can keep up are the key issues that affect whether the allotment funds can be effective within the predetermined time limit. It is difficult for listed companies to meet the requirements for the return on investment of shareholders.Furthermore, since the allotment of listed companies in our country is mandatory, the allotment will drag more funds from shareholders into the risky place of the stock market.According to the principle of diversifying funds, eggs cannot be put in one basket. Not only should investors not invest all their funds in a certain stock, but they should also set aside part of their funds to invest in less risky areas, such as buying treasury bills or Make other industrial investments.And the continuous allotment of shares every year is bound to drag more investment of shareholders into the stock market, making shareholders bear greater market risks.

[-]. Allotment of shares and loss of assets
Allotment of shares generally means that all shareholders should make additional investment according to the shareholding ratio, so that the relative holding ratio of the original shareholders will not be changed.Of course, if some shareholders don't mind the holding ratio, they can also give up the allotment.However, shareholders who give up allotment may suffer market price losses.

After the allotment of shares in circulation, due to the effect of ex-rights, the stock price will drop. For the shareholders participating in the allotment, due to the increase in the number of shares, the total market value of the stock will not change.And if the allotment is given up, these shareholders will suffer losses due to the reduction of the total market value of the stocks they hold.For the state shares and legal person shares that cannot be listed and traded temporarily, the market value is only a nominal price, and whether its economic interests are damaged depends on the changes in the net asset content and profitability of each share after the allotment.

When the allotment price is not equal to the net assets per share, the shareholder's abandonment of the allotment will lead to mutual transfer of assets, that is to say, some shareholders' assets will be lost in the allotment.When the allotment is lower than the net assets per share, the net asset content per share after the allotment will be higher than the allotment price and lower than the original base, so that part of the net assets of the shareholders who give up the allotment will flow to the party participating in the allotment free of charge; When the stock price is higher than the net asset value per share, the net asset value per share after the allotment will be greater than the original base and less than the allotment price, and part of the net assets of the party participating in the allotment will flow to the party who gave up the allotment free of charge.According to the current regulations of the China Securities Regulatory Commission, the allotment price of listed companies must not be lower than the net assets per share.In this way, in the allotment of listed companies, if the state shares and legal person shares give up the allotment, part of the assets formed by individual shareholders after the allotment will flow to the state stock and legal person shareholders free of charge, and the larger the allotment ratio, the higher the premium. The greater the loss.

[-]. Allotment of shares and price-earnings ratio

The reason why stockholders are keen on allotment shares is that in addition to increasing the number of shares in their hands, allotment shares can also reduce the price-earnings ratio through additional investment.

When a listed company allots shares, only when the allotment price is lower than the stock market price at the time of allotment, the allotment can be carried out.When the allotment is greater than or equal to the stock market price at the time of allotment, shareholders can directly buy similar stocks on the stock market to increase the number of stocks they hold.

Compared with the stock market price at the time of the allotment, the allotment price is very low. If the operating performance of the listed company can be maintained at the original level after the allotment, the average stock price will decrease because the cost of the stock received by shareholders will decrease after the allotment. , the price-earnings ratio of the stock will decrease accordingly.

If shareholder A buys 20 shares of G stock at a price of 1000 yuan per share, the after-tax profit per share of this stock is 0.2 yuan, and its price-earnings ratio is 100 times.When the market price of G stock is 15 yuan per share, the listed company announces allotment of shares, the allotment price is 5 yuan per share, and the allotment ratio is 0.5 shares per share.

According to the ex-rights method of allotment, the ex-rights price after allotment is:

Y = (market price + allotment rate × allotment rate) ÷ (1 + allotment rate)
=（15+0.5×5）÷（1+0.5）=11.66元。

股民甲以每股5元的价格配500股后，共持有G股票1500股，持股成本从每股20元降为每股15元，其市盈率从100倍降到75倍。

In fact, reducing the price-earnings ratio of stocks or the average cost of holding stocks does not necessarily have to be achieved through allotment of shares. If shareholder A can buy stocks with a lower price-earnings ratio in the market, the effect is the same as allotment of shares, except that It is because the types of stocks held have increased, because stocks are nothing more than listed companies providing investors with an opportunity to buy stocks with low price-earnings ratios.In the above example, if shareholder A can buy a stock with a price-earnings ratio of only 25 times (the allotment price ÷ after-tax profit per share), and invest another 2500 yuan, the effect of reducing the price-earnings ratio or stock cost of holdings will be the same, except that the shares held The variety of stocks has increased.

As long as investors grasp such a principle when making additional investment, that is, the price-earnings ratio of the stocks bought later is lower than the price-earnings ratio of the stocks bought first, and the average price-earnings ratio of the stocks can be reduced.If shareholders just want to reduce the cost of holding stocks or reduce the price-earnings ratio of holding stocks, they don't have to limit themselves to allotment of shares.For example, in the above example, the additional investment of 2500 yuan by shareholders does not necessarily have to be invested in the allotment of the original stock. If there are stocks with a lower price-earnings ratio in the market, such as stocks with a price-earnings ratio of only 2.5 times and a price-earnings ratio of 10 yuan per share, then At that time, shareholder A can buy 1000 shares, and the average price-earnings ratio of his shares will drop from 100 times to 56.25 times, which is better than participating in allotment of shares.

(Section [-]) Dividends and investment returns
Obtaining dividends is the basic purpose of shareholders investing in listed companies, and it is also the main return of listed companies to shareholders.But dividends are not the full return given to shareholders by listed companies, but only a part of it.Judging from the dividend situation in the Shanghai and Shenzhen stock markets in 1995, the dividend rate of listed companies (average dividend payout per share ÷ average earnings per share) is generally about 70%, and the remaining after-tax profits (30% of the total) are substantial. In the capital reserve fund, it becomes the development fund of the enterprise.Therefore, in western stock market analysis, it is one-sided to simply regard dividends as the total return of listed companies to shareholders. As long as the profits realized by listed companies, it is the return of shareholders’ investment, because the increase of capital public funds is also the return of shareholders’ equity. Increase, it enhances the operating strength of listed companies and lays the foundation for future operations.

Because dividends are not the whole of income, comparing the dividend payout with the average net assets per share, the capital return level of listed companies is generally relatively low. In 1995, the Shanghai and Shenzhen stock markets were about 7%, which was far lower than that of banks in the same period. Loan interest rate or treasury bond interest rate (about 11%).In fact, in 1995, the average return on equity of companies listed on the Shanghai and Shenzhen stock markets was about 11%.

When discussing the profitability of stocks, people think that the returns of stocks are higher than that of bank deposits or government bonds.In reality, because the price of stocks is out of touch with the amount of net assets contained in them, the investment income of stocks is far lower than the interest rate of savings or treasury bonds.If measured by the average stock price, the average stock price yield (average after-tax profit per share/average stock price per share) of the Shanghai and Shenzhen stock markets is only about 3%, which is equivalent to a one-year current savings.

The reason for this difference is that different bases are applied in the comparison.When discussing the fair rate of return, people generally compare the stock's return with its face value. For example, the face value dividend ratio (average dividend per share/stock face value) of the Shanghai and Shenzhen stock markets in 1995 was 17%, which is much higher than The current year's fixed savings rate or Treasury bond rate.The actual return on investment is calculated on the basis of the actual investment. It does not use the par value of the stock as the denominator, but the average stock price as the denominator. Therefore, the actual return on stock investment is much lower. Including transaction taxes and fees, the returns of shareholders are even lower.

(Section [-]) Performance growth and return on investment
Shareholders' returns come from the operating performance of listed companies.If the performance is good, the return to the shareholders will be high; if the listed company is not well managed, the return to the shareholders will be little or even no return.

When talking about the development of listed companies, operating income, net profit, and return on net assets are often used to demonstrate the operating performance of listed companies. Some investment value reports also often use the growth rates of these indicators to illustrate the company's impact on shareholders. s return.

In fact, operating income is the sum of a company's revenue in a year, and it is the scale of a company's operations.For a production company, operating income is sales; for a service company, it is the total income of services provided.If shareholders are compared to an enterprise, operating income is the total transaction volume of stocks sold by shareholders in a year.Therefore, operating income represents a sales scale, the more sales, the greater the operating income, and for a trading company, the faster the capital turnover, the greater the operating income.

Since operating income is the gross income of a company, it does not deduct operating expenses or costs, and it is not the operating performance of a listed company, so of course whether operating income increases or not is not a return to shareholders.For the same enterprise, even if the operating income of this year has doubled compared with previous years, if the cost rises faster, the profit of the enterprise may be lower than in previous years or a loss may occur.Therefore, the increase in operating income of a listed company has no direct relationship with its return to shareholders.

Net profit is a company's operating results in one year, and it is the maximum amount of dividends.The higher the net profit, the higher the dividends that shareholders can get, so the increase or decrease of net profit will affect the return on investment of shareholders.However, when using net profit to verify the return of listed companies to shareholders, attention should be paid to whether the investment of shareholders has increased. If the investment of shareholders has increased, the increase in net profit is a matter of course.

In my country's Shanghai and Shenzhen stock markets, due to the frequent allotment of shares by listed companies, and the allotment ratio is as high as 30%, the company's operating capital is getting stronger year by year. Correspondingly, the increase in net profit of listed companies should also be more than 30% every year. The expansion is mainly due to the increase in the investment of shareholders, rather than the enhancement of the operating capabilities of non-listed companies.

The best indicator to measure the return ability of listed companies is the return on net assets, which is the profitability of each unit of net assets, because it is an efficiency indicator, it is easy to compare it with investment returns in other fields.For example, the average return on net assets of listed companies in my country's Shanghai and Shenzhen stock markets was 1993% in 16, 1994% in 13, and about 1995% in 11. Return on earnings (excluding spreads) is equal to ROE.

When the profit of a listed company increases, if its return on net assets does not increase, it means that the profit expansion is caused by increased investment. If the return on net assets increases while the net profit increases, it means that the company's The operating capability has been enhanced, and the returns to shareholders have also been substantially improved.

(End of this chapter)