There is no question or doubt about money that can be too embarrassing or silly..
One of our dedicated reader, Deepali Shewale asked us a query on investing in stock markets and Initial public offerings (IPO).
“I am a beginner in understanding how the stock market works and how do to mindful investment. I have following queries”
1. On Business channel when they show following graphs, what does it mean?
XYZ(Company) 23,4500↑ 0.09% ↑
Could you please tell me what does these nos. means? How do we interpret them?
Answer: These graphs are called Stock Tickers. It gives an idea about the the broad stock market indices and share prices of individual companies. On a given trading day, a stock ticker will show
XYZ(Company) 23,45↑ 25.24 ↑ (0.09%)
XYZ : name of the company (abbreviated short name or initials used for trading)
2345, the live per share price of the company
25.24, is the absolute change in the price of the share since its previous day’s closing price.
0.09%, is the percentage change in the price of the share since its previous day’s closing price.
When absolute and percentage changes are quoted in green, shares are trading higher than previous day’s closing. A red one indicates that prices are trading lower than previous day’s closing.
Sometimes you may also see a figure like
it means that 50000 shares of the company have been bought and sold on that day.
A figure appearing in Rs crore like this:
Rs 1,000 crore
indicates the market capitalisation (total number of traded shares multiplied by its market price) of the company. It an indication of the value assigned to the whole company by the stock market buyers and sellers.
When markets are closed, you will only see the absolute index or share prices only.
Question 2. When company goes for Initial public offering (IPO), how does it determines what should be the value of per share? Also, is it something like out of 100% shares of company only 45% shares will be offered for public investment?
Answer: The company issuing the shares through an Initial public offering (IPO) has to offer a price band for its shares. The prospective investors then bid for the shares within this price band of lets say Rs 110-120. Investors can bid for shares at Rs 110, Rs 115, Rs 119 or Rs 120. This process is called book building IPO. Once bidding is over, the issuing company decides a cut-off price at which shares are finally issued.
The price band is decided by the issuing company in consultation with its merchant bankers (a class of financial intermediaries that help companies in complex financing transactions including IPO). While fixing the band, it will take into account its financial numbers like earnings per share (EPS). EPS, is company’s profits (left after paying expenses, taxes, interest etc) divided by the number of shares issued by the company. So EPS of a company is Rs 12, it means that you will earn Rs 12 as profits for holding one share of the company.These financial numbers are compared with the listed companies in the same business area.
In an IPO, the company may decide to issue new set of shares to public or existing institutional investors could offer their shares to public for sale. So, yes its possible that company may issue lets say 10% or 30% of its total shares on its balance sheet through an IPO. But whatever shares it offers in an IPO, stock market regulator prescribes a percentage (of shares being issued) for each category of investors-public shareholders, big institutional investors, employees.
To understand IPO process in further detail, we advice you to visit following links
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