Chapter 9 · 5 of 100 marks · workbook pages 187-197
Corporate Actions
Why companies act on their capital and what each action does to share count, price, EPS and the investor: dividends, rights, bonus, splits, consolidation, M&A, demergers, buybacks, delisting and swaps.
Focus
- Dividends
- Rights
- Bonus
- Split
- Consolidation
- M&A
- Demerger
- Buyback
- Delisting
- Share swap
Must know
- Corporate actions change ownership, price, capital structure, or investor cash flow.
- Bonus issues increase shares without cash inflow; stock splits reduce face value per share and increase share count.
- Rights issues give existing shareholders a chance to subscribe, usually at a specified ratio and price.
- Buybacks reduce outstanding shares and may improve per-share metrics if executed at a reasonable price.
Traps
- Bonus and split both increase share count but have different accounting mechanics.
- Dividend reduces cash and may lead to price adjustment.
Formulas in this chapter
Full sheet- Theoretical Ex-Rights Price (TERP): TERP = (Cum-rights value of holding + Rights subscription amount) / Total shares after rights
- Ex-Bonus / Ex-Split Price: Adjusted price = Cum price x (Old shares / New shares)