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Financial Management PRESENTATION .pptx

  1. BY-  SHIVAM MISHRA - 09817703521  DANISH CHANDRA – 06117703521  AYUSH – 09317703521 FINANCIAL MANAGEMENT Impact of bonus issue of shares with case study.
  2. What is a Bonus Issue? A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to existing shareholders. A company may decide to distribute further shares as an alternative to increasing the dividend payout. For example, a company may give one bonus share for every five shares held.
  3. CONDITIONS FOR ISSUE OF BONUS SHARES The issue of bonus shares must be authorized by the Articles of the company. The issue of bonus shares must be recommended by the resolution of the Board of Directors. Also this recommendation must be later approved by the shareholders of the company in the general meeting. The Controller of Capital Issues must give permission to the issue. The above mentioned are the conditions that a company must fulfil to issue bonus shares.
  4.  bonus shares are issued for meeting the liquidity needs. When there are situations where the company is running out of cash, and shareholders are expecting their regular dividends, then bonus issues are given to shareholders. By selling these bonus shares, the shareholders can meet their liquidity needs.  Restructuring the company's reserves is another reason why bonus shares are issued. But there is a system on how bonus issues take place. What are the Reasons for Bonus Issues?
  5. Procedure for bonus issue
  6. HOW WE CAN GET BONUS SHARE To be eligible for the different types of bonus shares you must hold the shares of the company in the demat account. If you want to open a demat account, you can consider Kotak Securities. They are the leading broking firm of India that provides premium services to the clients at the most affordable rates.
  7. ADVANTAGES AND DISADVANTAGES  Companies low on cash may issue bonus shares rather than cash dividends as a method of providing income to shareholders.  Because issuing bonus shares increases the issued share capital of the company, the company is perceived as being bigger than it really is, making it more attractive to investors.  In addition, increasing the number of outstanding shares decreases the stock price, making the stock more affordable for retail investors.  However, issuing bonus shares takes more money from the cash reserve than issuing dividends does.  Also, because issuing bonus shares does not generate cash for the company, it could result in a decline in the dividends per share in the future, which shareholders may not view favourably.  In addition, shareholders selling bonus shares to meet liquidity needs lowers shareholders' percentage stake in the company, giving them less control over how the company is managed.
  8. IMPACT OF BONUS ISSUE ON HOLDINGS Impact on holdings The share price falls in the ratio of the bonus allotment. However, this does not affect the overall value of holdings. Example scenario Mr A holds 10 shares of Reliance at ₹1000 each and the company has announced a bonus issue in the ratio of 2:1. So Mr A will receive 2 bonus shares of Reliance for every share held on the record date. Mr A’s holdings will now have 30 shares of Reliance after the bonus issue (10 originally bought + 20 bonus shares). In the above example, the share price will drop to ₹333.33 [1000/(2+1)] but this won’t change the value of Mr A’s holdings. Value of holdings before bonus: 10 × 1000 = ₹10,000 Value of holdings after bonus: 30 × 333.33 = ₹10,000 If a company announces a 1:2 bonus and an investor holds just 1 share, they will get 0.5 shares as a bonus. The 0.5 shares are known as partial bonus shares that are settled in cash, and the funds will be credited to the investor's primary bank account.
  9. CASE BRIEF -  Infosys (the Company or Infosys) is a leading provider of consulting, technology, outsourcing and next-generation digital services, enabling clients to execute strategies for their digital transformation. Infosys strategic objective is to build a sustainable organization that remains relevant to the agenda of clients, while creating growth opportunities for employees and generating profitable returns for investors. Infosys strategy is to be a navigator for our clients as they ideate, plan and execute on their journey to a digital future.
  10. PROS-  Company is almost debt free.  Company has a good return on equity (ROE) track record: 3 Years ROE 25.39%•  Company has been maintaining a healthy dividend payout of 54.63% CONS- • Stock is trading at 9.77 times its book value • The company has delivered a poor sales growth of 9.98% over past five years. • Promoter holding is low: 12.95%
  11. Bonus Shares History
  12. Impact of bonus issue on infosys As a result of bonus issue, the number of outstanding Infosys shares will also double and its lot size in derivative market also double. But, their holding (in terms of percentage) in the company remains the same. Also, earnings per share (Earnings Per Share = Net Profit / Number of Shares), falls as more share are outstanding now. The face value of Infosys shares will remain Rs 5 per share post the bonus issue. A bonus issue increases the liquidity of shares in the market and results in increased investor base. Bonus shares are issued from retained earnings, as on 31st March 2015, Infosys's share capital was Rs 572 crore, after bonus issue it will be doubled and the similar amount will be deducted from its retained earnings, which stood at Rs 54191 crore as on 31st March 2015.
  13. Important terms liquidity needs - In simpler terms, liquidity is to get your money whenever you need it. Dividends - It refers to a reward, cash or otherwise, that a company gives to its shareholders. ROE - Return on equity signifies how good the company is in generating returns on the investment it received from its shareholders. Announcement date - Date on which issue of bonus was announced . The record date – it is a cut-off date set by the company and the investors must be shareholders of the company before this date for them to be eligible to receive bonus share issue. The ex-date is the last day to buy the company's stock in order to be eligible for a bonus share issue. AGM – annual general meeting , EGM- extraordinary general meeting meeting other than agm )
  14.  A bonus issue is an offer of free additional shares to existing shareholders. A company may decide to distribute shares as an alternative to increase the dividend pay-out.  There are two conditions which are essential for issue of bonus share. These conditions must be fulfilled for issue of bonus share.  There is a procedure for bonus issue which consists of six steps.  There are mainly two reasons for issuing bonus issues  which are meeting the liquidity needs and  another reason is restructuring the company reserve.  as a coin has two side the same is with this concept of bonus issue it has both advantages and disadvantages  to explain better all these, we have taken example or case study of Infosys to explain better all these concepts and we have also shown some history and impacts of bonus issue in Infosys.  In end we would like to thanks to all and specially Preeti Maam for giving us this opportunity for presenting and learning of this topic. Conclusion