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How You Can Make Sense of a Share

For those of you who have ever tried reading an annual report of a publicly-listed company, you would likely have come across terms like ‘authorised shares’, ‘outstanding shares’, and ‘treasury shares’, etc.

But, what do all these terms mean for us, as investors, and what should we take note of?

Authorized Shares

Every company has to issue shares to shareholders to determine its ownership composition. Authorised shares can simply be understood as the largest number of shares a company is allowed to issue. However, it’s rare to find a company issuing shares up to its authorized limit.

Generally speaking, the number of authorized shares in a publicly-listed company is not as important to us shareholders as compared to the actual number of outstanding shares in addition to the existence of dilutive financial instruments (both of which will be covered shortly).

Outstanding Shares

Outstanding shares are the shares that are already issued out to ordinary shareholders. This is the important figure that we need to know and it is used to calculate common information like earnings per share and price per share.

As of its latest annual report, the aptly-named logistic facilities provider Global Logistic Properties (SGX: MC0) had roughly 4.76 billion outstanding shares. With its current share price of S$2.78, we can calculate that GLP has a market capitalization of around S$13 billion (S$2.78 multiplied by 4.76 billion).

As a shareholder of a company, we should not only know the number of outstanding shares it has. We should also find out if the company has issued any financial instruments that may cause our ownership of the company to be diluted. Examples of such instruments are convertible bonds, share warrants and options.

Some of the blue chip shares within the Straits Times Index  (SGX: ^STI) that currently have convertible bonds outstanding include CapitaLand  (SGX: C31)Golden Agri-Resources (SGX: E5H), and Noble Group (SGX: N21).

Preferred Shares

Lastly, preference shares or preferred shares are shares a company can issue that would not dilute owners of ordinary shares. In terms of the hierarchy to claim any assets in the event of a bankruptcy, preferred shareholders must be paid first before ordinary shareholders.

In spite of this, a preferred share normally has no voting rights and often does not share in the spoils of a company’s profits, unlike an ordinary share. Therefore, preferred shares would usually entitle its owners to receive a fixed dividend pay-out to entice investors. United Overseas Bank (SGX: U11) is one such company within the Straits Times Index that has preference shares outstanding.

Foolish Summary

Although the terms for all the different type of shares can be confusing initially, these terminologies should become more familiar after going through a few annual reports.

Once we get this sorted out, the prices that are quoted daily on the Mainboard and Catalist stock exchanges here should make more sense to us as investors.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.