Shares, Share Prices & Market Capitalisation | A-Level & IB Business

Summary

This video provides an insightful overview of shares and shareholdings in companies, explaining key concepts such as private and public limited companies, share prices, and market capitalization. It discusses the rights of shareholders, including dividends and capital growth, and explores factors influencing share prices, both internal and external to a company. The video highlights the importance of market capitalization as a measure of a company's value and illustrates these concepts with real-world examples, emphasizing the dynamics of share trading and investment risks.

Takeaways

• 😀 A company is a separate legal entity, and its owners are known as shareholders.
• 🏢 There are two main types of companies: private limited companies (Ltd) and public limited companies (PLC).
• 📈 Private companies cannot sell shares on public stock exchanges, while public companies can.
• 🔍 Share capital is divided into shares, with each share representing a part of ownership in the company.
• 💵 Shareholders have rights, including voting rights and the potential to receive dividends if declared.
• 📊 Capital growth occurs when the value of shares increases over time, allowing shareholders to sell for a profit.
• 📉 Investing in shares carries risks; share prices can fall as well as rise, leading to potential capital losses.
• ⚖️ Share prices are determined by supply and demand dynamics in the market.
• 🔔 Public company share prices are publicly available and fluctuate constantly during trading hours.
• 💰 Market capitalization is calculated by multiplying the current share price by the total number of shares, representing the overall value of the company.

Q & A

What is a company and how is it defined in the context of shares?

A company, or incorporated business, is a separate legal entity with its own legal personality. The owners of the company are known as shareholders, who hold shares in the business.

What are the two main types of companies discussed in the video?

The two main types of companies are private limited companies and public limited companies (PLCs). Private companies have shares held privately and cannot sell shares on a public stock exchange, while PLCs can trade their shares publicly.

What rights do shareholders typically have?

Shareholders typically have voting rights, with one vote per share, and the right to receive dividends if the company approves their payment.

How is shareholding expressed?

Shareholding is expressed as a percentage of the total number of shares in issue, indicating the proportion of ownership a shareholder has in the company.

What are the two primary rewards for being a shareholder?

The two primary rewards are dividends, which are payments made to shareholders from the company's profits, and capital growth, which is the increase in the value of shares over time.

What factors determine the share price of a company?

The share price is determined by supply and demand. If more people want to buy shares than sell them, the price tends to rise, and vice versa.

What is the significance of market capitalization?

Market capitalization, or market cap, represents the value of a business and is calculated by multiplying the current share price by the total number of shares in issue.

What is a profits warning, and why is it important?

A profits warning occurs when a company informs the market that its profits will likely be lower than expected. It is important because it can lead to a significant drop in share price and affect investor confidence.

How can a company's board influence its share price?

The board can influence share price by deciding to pay higher dividends, communicating effectively with investors about growth prospects, and ensuring strong financial performance.

What are some external factors that can affect a company's share price?

External factors include overall market sentiment, economic conditions such as recessions, and the presence of more attractive investment alternatives.