Comment, question or quotation of the day
29-10-2020 : Quote of the day
"God doesn't play dice"
Albert Einstein, physicist, Nobel Prize in Physics (1921)
28-10-2020 : Question from an ICCF@Columbia Business School participant.
"I read that a capital increase is complicated to do when the share price is low. I don't understand this point, there will be no more dilution in case of a high or low share price? On the other hand, the capital increase will very often take place at a lower price. Is this the reason why the capital increase can be cashed in at a high price?"
If you need to find €1,000,000 of equity capital and your share is worth €10, you will have to issue (without subscription rights to simplify) 100,000 shares. If your share price now falls to €5, to raise the same amount, you will have to issue twice as many shares. If you have a 51% controlling shareholder who can't afford to put money back into the pot, this will pose the problem of control. So the lower the share price, or the lower the value for an unlisted company, the greater the dilution.
When the capital increase is done at a discount to the stock market price or value, then there are preferential subscription rights (PSRs) that change the appearance of the capital increase, but not its reality. If the price is 100 and the new shares are issued at 70, the new shareholder does not pay 70, but the value of the share. Indeed, in order to be able to subscribe at 70, the new shareholder must purchase preferential subscription rights whose value in theory and in practice is set at a level that makes him indifferent to participate in the capital increase by subscribing for new shares and purchasing PSRs to do so, or to simply buy shares that are similar in all respects on the stock exchange.
For more details, see chapter 38 of Vernimmen.
Have a nice day.
The Vernimmen.com glossary provides definitions for a couple of thousands of financial, stock market or economic terms.
This financial dictionary allows beginners to progress in their learning of finance and to experts to cease the precise meaning of a sentence.
The Vernimmen.com Quiz offers over 300 questions with answers to progress in your understanding of finance and to test your knowledge.
Questions are sorted by key topics (financial analysis, investment and stock markets, value, financial engineering and financial management).
We frequently ask our readers to give us their point of view on a specific topic.
You will find here the current survey with the to-date status of answers as well as past polls.
Thanks to our partner Infinancial, we can offer on this page financial data on over 16 000 groups around the world.
Updated several times a year, this database offers information sometimes hard to find elsewhere (beta, …)
The Vernimmen.com Letter
Number 131 of July 2020
News : Stock market or investment fund shareholding?
Statistics : The ICO market
Research : Wrong about dividends: just like financial professionals!
Q&A : Brain teasers for the holidays