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Difference Between Bonus And Split PowerPoint Presentation

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Difference Between Bonus And Split Presentation Transcript

Slide 1 - Difference Between Bonus And Split Shareholders play a significant role in the growth and expansion of a company as they are integral to its success. In this regard, it becomes important for a company to look after its shareholders' interests. A bonus share and a split share are two of the ways the company protects the shareholder's interests. For this reason, you should learn some important ratios before investing so you can choose good stocks for the long-term and benefit from them. Let’s understand the difference between stock split and bonus shares.
Slide 2 - What is a Stock Split? And their reasons Stock splits occur when a company divides the face value of a share by a factor and multiplies the number of shares by the same factor. Share splits result in a decrease in share value while market capitalization remains the same, which leads to increased shares of a company. Let’s consider an investor is holding 100 shares of Rs.5 face value each and a share price of Rs.10. Suppose the investor holds 100 shares of Rs.5 face value each and a share price of Rs.10. The investor will have 500 shares, at a face value of Rs.1 and a share price of Rs.2. To know about all technical terms go for our stock market courses. Reasons for stock split Stock splits have the primary advantage of enhancing liquidity of their shares and making them more affordable to small investors. MRF Shares are the most expensive shares in India, making them unaffordable for small investors. The recent stock splits of Tata Steel in the ratio of 1:10 and Bajaj Finserv in the ratio of 1:5 are examples. Investors' ownership of shares increases as a result of a stock split, but their investment value remains the same.
Slide 3 - What is a Bonus Share? While the stock bonus and stock split operate in a similar manner, the face value of the company's shares does not change. wherein the bonus shares are given away without triggering any tax consequences to the company's current shareholders. The company's reserves are used to offset the increase in share capital caused by the additional shares issued as part of the stock bonus. Even if the issuance of bonus shares is a good thing, Sebi criteria for the issue of bonus shares are in place, and businesses must abide by them when they do so. For instance, a shareholder owns 100 shares with a face value of Rs. 5 apiece and a share price of Rs. 10. The shareholder receives 4 new shares for every share of the company they now own following a share bonus issue of 4:1.Following this, the face value of the investor's shares will remain at Rs. 5, while the number of shares outstanding will rise to 100 + 100 x 4 = 500 shares, and the share price will be 10/(1+4) = Rs. 2. Similar to a stock split, the shareholder's investment value will not change in this situation.The main benefit of bonus shares is that they enhance shareholders' shareholdings, increasing their liquidity without triggering any tax consequences.
Slide 4 - Key Differences Between Stock Split and Bonus Shares 1). Meaning: Bonus shares refer to issuing more shares to reward existing shareholders from the business reserves, as opposed to a stock split, which is a corporate action of splitting the outstanding shares into multiple shares in a defined ratio. 2). Expression in the books: A stock split with the original number of shares on the right and the number of pieces the shares will be divided into on the left, at a ratio of 5:1 or 3:2.The left side indicates the number of additional shares that are accessible above and above the original number of shares on the right side, while the Investors receive bonus shares. A 1 for 2 ratio means that each shareholder who has two shares will also receive one additional share.As a result, someone who has 10 shares will also receive 5 bonus shares. However, a shareholder with 11 shares will likewise receive just 5 shares because they are only entitled to 1 bonus share for every 2 shares they own.
Slide 5 - 3). Face Value: In a stock split, the market capitalization of the company is unaffected while the current shares are divided in a predetermined ratio, such as 5:1. As the face value is divided by the same factor as the share split, it causes a change in the face value of the shares. The face value of a share does not change, however, when a company issues bonus shares because in this scenario, more shares are created from reserve profits. Thus, it is clear that the bonus shares are distributed to current shareholders in the form of bonus stock issuance, which is also subtracted from the reserves, much like a dividend. 4). Frequency: When a share's face value hits Rs. 1, the stock divides, and further splitting is not permitted.The face value of the stock is unaffected by stock bonuses, so a corporation can theoretically give out as many as it likes.
Slide 6 - 5). Rationale behind these actions: A stock bonus issue is primarily done to reward current shareholders. It is similar to receiving a dividend in the form of extra stock. The corporation is giving more shares to its current investors while still using the reserves to pay out cash dividends. Investors view these moves as a strong indication of management confidence because a bonus share issue is particularly the capitalization of earnings for the company. Contrarily, the main justification for the stock split is to raise the company's share price to ideal levels without hurting the business. The main factors that led to this choice were to increase retail involvement and share liquidity. Companies that divide their shares typically have strong financial performance and high share values, making them a suitable alternative for gifting to loved ones. As a result, you should understand how to give stocks to your family and friends and how to help them start a demat account if they don't already have one. Note: How to learn the basics of the stock market is a common question among Indians, we are providing a one-stop solution for them by providing them with our best stock market technical analysis course where we will provide stock market basic knowledge.
 

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