PLEASE HELP!! SHARES!

[Lorna]

Can you please help me. I am studying Technician through homestudy using the BPP books.<BR><BR>I have absolutely no idea when it comes to shares, so naturally, presumed the BPP books would explain all.<BR><BR>They only briefly touch the subject, then expect you to be able to carryout extensive examples.<BR><BR>I would be truely grateful if someone could explain the following....<BR><BR>I understand that share holders are people outside the company who put capital into the business, in the form of shares.<BR><BR>Example - you buy 100 shares @ £1.00 each. = £100.<BR><BR><BR>What I do not understand, is how the market prices of shares change on a daily basis on the stock market - is it the price other people are willing to pay? <BR><BR>I used to think the daily change in the market price of shares was due to shares in profits, but I belive I was wrong, and that dividends are share of profits.<BR><BR>I hope someone (a) understands my question, and (b) gives me an answer.<BR><BR>Many thanks..

[katrinaandthewaves]

I have just about completed the Intermediate Stage through BPP Home Study so I haven't touched on shares yet but they were a topic on the A Level Accounting syllabus when I studied it a few years ago. This means I am a bit rusty but I do remember being confused about it to start with and what follows is the bits I can recall (I hope that I'm correct though!).<BR><BR>The aspect of shares that you need to think about as an accountant is SHARE CAPITAL. This is a means of obtaining funds to run a business. The shareholders invest money by arranging to buy shares, usually ordinary shares. There are different types of share arrangements but I don't know whether you need to know about them all. The directors can decide at any time (but usually annually) to propose to issue a dividend (a sharing out of the profits based on the shares held by each investor) and the shareholders have to vote whether to accept this.<BR><BR>Let's say that agree to buy £100 of £1 ordinary shares in your company (£1 is the FACE VALUE). If the purchase is authorised your company is entitled to demand up to £100 from me. If your company only needs £50 of the capital I'm offering then you can just demand that and they will be PART-PAID shares. Whether I'm fully paid-up or not if your company goes bust the most that I can lose as a shareholder is £100 (which is why they are called limited companies, because there is limited liability for the shareholders).<BR><BR>There are two types of limited company - private and public. ONLY the latter, which is any company with plc after its name, is allowed to trade its shares on the stock market (to become a plc special conditions must be met so most companies cannot do this). The shares can change hands between traders according to their agreed MARKET VALUE. This will be the price that investors think is worth paying based on how well the company is thought to be doing, and therefore how much profits they think will be available to distribute as dividends once they own those shares. The money that people pay on the open market does not get invested in the company (and therefore increase its share capital) but is just exchanged between those who are arranging the deals. I'm not sure how they keep track of it all when there's so much changing of hands going on but I don't think you need to know in order to pass your Technician exam!<BR><BR>I hope that this is of some help. Have you tried asking your BPP Tutor? That's what you're paying your fees for (although if your tutor is anything like mine was you probably would not get a clear answer). If you're still struggling to get your head round it try some other accounting books from the library. I've usually found that Frank Wood's explanation of topics can be understood quite easily.<BR><BR>Cath<BR>

[Lorna]

Thanks Cath. Thats great.<BR><BR>