REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
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Share consolidations
or subdivisions
Formula for calculating
the adjustment factor:
Where ‘old shares’
is the number of shares in issue beforehand, and ‘new shares’
is the number of shares in issue afterwards, the factor is simply:
OLD SHARES
--------------
NEW SHARES
Example of share
consolidation details:
A company decides
to halve the number of shares in issue from 10 million to 5
million by consolidating every 2 existing shares of 25p nominal
value into 1 new share of 50p nominal value (a 2 into 1 consolidation).
The total nominal value of the issued share capital remains
unchanged at £2.5 million. After the consolidation any shareholders
who previously held, for example, 3,000 shares of 25p each now
have a new total of 1,500 shares of 50p each. Whilst the share
price will probably have doubled, all other things being equal,
they now have only half as many shares as before, so the overall
value of their holding remains the same.
Calculating an adjustment
factor for the above consolidation:
OLD SHARES 2
-------------- = --
= 2.0
NEW SHARES 1
Applying the adjustment
factor:
If, for example, the
dividend per share for the previous period was 15.5p, and the
consolidation above occurred after the year-end, the adjustment
factor of 0.6 would be applied to give the following adjusted
dividend per share:
15.5p X 2.0 = 31.0p
Example of share
subdivision details:
A company decides
to treble the number of shares in issue from 10 million to 30
million by subdividing each existing share of 30p nominal value
into 3 new shares of 10p nominal value (a 1 into 3 subdivision).
The total nominal value of the issued share capital remains
unchanged at £12 million. After the subdivision any shareholders
who previously held, for example, 1,000 shares of 30p each now
hold a new total of 3,000 shares of 10p each. Whilst the share
price will probably have fallen by two thirds, all other things
being equal, they now have three times as many shares as before,
so the overall value of their holding remains the same.
Calculating an adjustment
factor for the above subdivision:
OLD SHARES 1
-------------- = --
= 0.333
NEW SHARES 3
Applying the adjustment
factor:
If, for example, the
dividend per share for the previous period was 15.5p, and the
subdivision above occurred after the year-end, the adjustment
factor of 0.6 would be applied to give the following adjusted
dividend per share:
15.5P X 0.333 = 5.16p
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