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Thread: Bonus issue and it's effect on stock prices

Bonus as the word suggest refers to something that is received without consideration or price. A company may reward it's shareholders in form of cash payouts (dividends) or stock payouts (bonus issue).
Bonus issue is carried out by company having huge amount of free reserves that can be capitalized. Eg: A company has been making profits and accumulated free reserves. These reserves can be used to issue bonus shares which converts them into share capital.
Let us say a company has Rs. 1,00,000 of share capital and Rs. 1,00,000 in reserves and surplus. Company has 10,000 shares outstanding of face value Rs. 10 each.
If the company decides to issue a bonus of 1:1 (1 share in bonus for 1 share held),
The company will need to move Rs. 1,00,000 (Rs. 10 x 10,000 shares) from reserves to share capital.
Now once the bonus issue is carried out, the stock price falls to the level where shareholders wealth remains unchanged.
Eg: Suppose a stock is worth Rs. 1,000 and company decides to issue a 1:1 bonus. So every shareholder will get 1 free share for every share held. This will reduce the price of stock to Rs. 500 thereby keeping the wealth unchanged.
TIP: Issuing bonus shares instead of dividend helps company preserve it's cash as bonus shares do not involve any cash outflow from the company.
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Finsense Gurukul
@FinsenseG
Thread: Depreciation: Why is it important?

A business requires assets to operate and generate profits. These assets like Plant & Machinery, Equipment, Furniture etc are used to run the business.
When a business purchases assets, they are used for longer duration. Eg: If a company purchase a machinery, It may be used in business for 10-15 years. Since the usability of asset is more than 1 year, the same cannot be treated as expense in 1 year and shown in P&L Statement.
But this machinery will become obsolete after 10-15 years, So how to provide impact of such obsolence?
By charging a certain amount to Profit & Loss statement every year in form of Depreciation.
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Finsense Gurukul
@FinsenseG
Thread: Cash Flow Gimmick!

As we all know the Cash Flow Statement (CFS) shows the movement of cash in and from the company in a current period. However we need to have some eye for detail to check if there is anything unusual going on with the business.
Let us take an example of a company that is growing sales at a decent pace. usually it should have growing cash flows too at around same pace. However, What could go wrong?
So if a company focuses too much on growing it's topline (sales) in order to report growth in numbers, there are chances that it might not be able to efficiently collect money from it's receivables (debtors). i.e. It might have to offer extended credit to customers
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Finsense Gurukul
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Thread: Free Cash Flows and It's importance

We hear this thing a lot times where analysts/management talks about free cash flows generated by the company. Well let us help you out with this concept today.
When a company sells it's products and services, It get paid in form of cash. This cash is used for running the business i.e. paying to suppliers, salary to employees, taxes to government, purchase of fixed assets & dividends to shareholders.
A company needs to invest large amounts of cash into purchase of fixed assets to grow the business. Here comes the concept of free cash flow (FCF).

FCF is the cash generated by company from it's operating activities after reducing the amount spent on purchase of fixed assets.
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