A shareholder is an investor in a company’s shares. Each share represents a fractional ownership interest in the company. Shareholders invest money to receive dividends and to see their stock’s price rise.
Additional paid-in capital is the amount of money invested in a company’s shares over and above their par value. This is subtracted from shareholders’ equity to reveal total assets.
Stakeholders
Stakeholders are people and groups that have a vested interest in a business or project. They might have a positive or negative impact on the activity or project, and their support is crucial to success. They might also express their concerns or be vocal.
Stake holders can be investors looking for a financial return, such as shareholders or debtholders; employees who depend on the company for their employment and benefits; customers; communities; and local and national government agencies. To understand the impact that stakeholders have on a business, companies need access to leading indicators in real time so they can respond quickly to any changes in sentiment.
Investors make money through capital growth – increasing the value of their shares – and dividend payouts, which are a share of the profit the company makes. Some companies offer a dividend reinvestment plan, where shareholders can automatically reinvest the company’s profits back into their own shares, which is another source of passive income.
Shareholders’ Equity
Shareholders’ equity is one of the key metrics that financial experts use to determine a company’s viability and sustainability. It represents the residual value of a company’s assets after all its debts are paid off in a hypothetical liquidation. It is calculated from a combination of stock components, contributed capital and retained earnings. It also includes the amount of treasury shares, which are stocks that a company has repurchased and placed in its treasury for future use or to thwart a hostile takeover attempt.
Retained earnings are the profits that a company has earned but not distributed to shareholders, which are instead invested back into the business for expansion purposes. Contributed capital includes the par value of common and preferred stock, which is then augmented or reduced by the number of new shares issued or the value of stocks repurchased. The total liabilities are then subtracted from the residual value to arrive at a company’s shareholder equity.
Dividends
A company’s dividend is the payment it gives to shareholders in return for their investment. It is usually expressed as a dollar amount per share and paid either regularly or on a one-time basis. A company may also choose to reinvest its dividends, which are usually taxed at regular income rates rather than capital gains rates.
A dividend can be stock or cash, and is based on the company’s retained earnings. The Leavey School of Business explains that a company’s board of directors sets the dividend payout schedule. This includes the declaration date, which determines which shareholders are eligible to receive the dividend.
Companies that pay regular dividends typically have larger, slower-growing businesses that can generate enough cash to cover their operating expenses. These are referred to as “defensive” stocks because they tend to be less volatile than growth stocks and provide steady income for investors. However, dividends are not guaranteed and companies can cut them if they run into financial trouble.