Albano Stock Transfer Services - Business decisions are often difficult to make, especially for publicly-traded firms. When a business-owner decides to institute changes, or what we also call corporate actions, the company’s workers, shareholders and, likewise, the securities issued by the firm are affected, one way or another. Corporate actions provide strong signals for investors seeking potential investment opportunities. A firm’s financial health, as seen through such indicators, points to its ability to perform well at the stock market.
Specifically, what would comprise a corporate action? Such actions as changing a company’s name, stock splits, and mergers and acquisitions would serve as common examples of corporate actions. They are done for various reasons, such as corporate restricting or sharing the company’s profits to its stockholders. In general, such actions arise as corporate decisions voted upon by a firm’s board of directors, with the approval of the shareholders. Hence, no one is left out in the decision process, difficult and messy as these changes might often come, especially when the financial interests of many individuals or groups are involved. Nevertheless, corporate actions often arise as a necessary phase in the growth of a company.
Let us take a closer look at some corporate actions and how they impact a company’s stock:
Stock Splits: Here is a case where a firm divides or “splits” its present shares into multiple shares. Referred to as a “bonus share” or “forward stock split”, a stock split is often taken as inconsequential in terms of affecting a company’s equity, since the increase in the number of shares does not alter the worth of the assets of a firm. The primary reason for resorting to this corporate action is essentially to enhance the liquidity of a company’s shares on the stock market.
Reverse Stock Splits: This move is comparable to a conventional “forward” stock split, except that this one ends up decreasing the total number of a firm’s outstanding shares. Again, like its counterpart, this action does not also change the real value of a company’s shares either. Reverse stock splits are also referred to as a “stock consolidation” or a “share rollback.”
Dividends: Dividends refer to the shared earnings of a company, as approved by its board of directors, which is distributed to a group of shareholders. Issuing dividends to shareholders impacts the equity of a company as it reduces its distributable equity. There are two kinds of dividends: stock and cash. Stock dividends come in the form of stock certificates, while cash dividends are given in dollar bills to individual shareholders.
Mergers and Acquisitions: Among corporate actions, mergers and acquisitions can induce drastic changes in a firm’s organization and operation; hence, they can affect its financial status significantly. In a merger, two or more firms join to become a single organization, while acquisitions involve one firm taking control over another firm and its bulk of shares. A direct and clear line of communication among shareholders during such corporate moves is of utmost importance, since radical changes can occur in stock value and price.
The ultimate goal of corporate actions is to provide shareholders higher value for their investments, aside from positioning a company in such a way that its potential for growth is enhanced. Stagnation, as is often the case, results from the absence of purposeful action.