Stock Split | Buybacks | Rights Issue - தமிழ் | Bonus issue vs Split | Corporate Actions - Part 2

3 important corporate actions in the world of finance: stock split, buyback, and rights issue. In this comprehensive video, we will not only delve into the intricacies of these actions but also shed light on the key differences between stock split and bonus issue, enabling you to gain a deep understanding of these concepts.

📈 Stock Split:
A stock split occurs when a company divides its existing shares into multiple shares, aiming to adjust the price per share and make it more affordable for investors without affecting the overall market capitalization. For instance, in a 2-for-1 stock split, each existing shareholder receives two shares for every one they previously held, effectively halving the stock price. This action enhances liquidity, improves marketability, and attracts a broader range of investors, resulting in increased market participation.

🔃 Buyback:
A buyback, also known as a share repurchase, involves a company repurchasing its own outstanding shares from the open market. By reducing the number of shares in circulation, a buyback effectively increases the ownership stake of existing shareholders. Companies often opt for buybacks to signal confidence in their stock, utilize excess cash, increase earnings per share, and enhance shareholder value. However, it is crucial to carefully analyze the company's motive behind the buyback and evaluate its impact on the company's financials and long-term prospects.

💼 Rights Issue:
A rights issue is a method through which a company raises additional capital from its existing shareholders. In this action, shareholders are given the opportunity to purchase additional shares at a discounted price compared to the current market value. This allows existing shareholders to maintain their proportional ownership in the company and participate in its growth. However, shareholders must diligently evaluate the terms of the rights issue, the company's financial position, and its future prospects before deciding whether to exercise their rights.

🔁 Stock Split vs. Bonus Issue:
While both stock split and bonus issue involve increasing the number of shares, there is a fundamental distinction between the two. In a stock split, additional shares are issued to existing shareholders in a predetermined ratio, without altering their proportional ownership or the face value of the stock. On the other hand, in a bonus issue, additional shares are issued to shareholders free of cost, resulting in a reduction in the face value of each share while maintaining their proportional ownership. Both actions aim to enhance affordability and market liquidity, but bonus issues act as a rewarding mechanism for shareholders without diluting their ownership.

Additionally, it is important to consider the impact on the face value of the stock during these actions.

📈 Stock Split:
During a stock split, the face value of each share remains unchanged. The company divides the existing shares into multiple shares without altering the overall value of the company or the individual shareholder's stake. For example, if the face value of a share was ₹10 before the split, it would remain ₹10 even after the split. However, the number of shares held by each investor would double, effectively reducing the price per share by half.

🎁 Bonus Issue:
In contrast, bonus issues involve an adjustment in the face value of the stock. Additional shares are issued to existing shareholders without any cost. Consequently, the company increases the number of shares outstanding and adjusts the face value of each share accordingly. For instance, if the face value of a share was ₹10 before the bonus issue, and a 1-for-1 bonus issue is announced, the face value of each share would reduce to ₹5 after the bonus issue.

While the face value changes in a bonus issue, the proportionate ownership of shareholders remains unaffected as the bonus shares are issued to them without altering their existing holdings.

Understanding the nuances of these corporate actions, including their impact on face value, is crucial for investors when analyzing the potential effects on stock prices, trading volumes, and overall shareholder value.

We emphasize the significance of comprehending these corporate actions as they can significantly influence a company's stock price, trading volume, and shareholder value. However, it is imperative to carefully evaluate the underlying reasons and implications of these actions before making investment decisions. Stay informed and make educated investment choices that align with your financial goals.

Corporate Actions Part 1 - Dividends & Bonus Issue :    • Dividends & Bonus Share Issue Explain...  

How Dividend Works? Popular (BAD) Dividend Strategies | Ex-date :    • How Dividend Works? Popular (BAD) Div...