What are Shares?
A share is like owning a tiny piece of a company. Imagine a pizza sliced into many thin pieces; each slice represents a share. If you have one slice, you own that fraction of the whole pizza. In business terms, owning a share means you have a claim on the company's profits and assets.
Understanding Dividends
A dividend is the money a company gives to its shareholders out of its profit. Think of it as the company sharing its birthday cake with everyone who helped make it. The amount each shareholder gets depends on how many shares they own.
💡 In Simple Words: When a company earns profit, it may split some of that money among people who own its shares. The share you hold decides how much of that split you receive.
Key Terms You Need to Know
- Face value (or par value): The original price of one share when it is first issued, like the sticker price of a new video game.
- Rate of dividend: The percentage of the face value that the company decides to pay as dividend.
- Total dividend: The whole amount of money the company will distribute to all shareholders.
- Dividend per share (DPS): The amount of dividend each single share receives.
How to Calculate Dividend per Share
The calculation follows a simple chain:
- Find the company’s total profit available for dividend.
- Decide the rate of dividend (usually given in %).
- Compute Total dividend = (Rate of dividend × Face value × Number of shares).
- Divide the total dividend by the total number of shares to get Dividend per share.
Worked Example
Let’s walk through a typical ICSE question.
Problem: A company has issued 10,000 shares, each with a face value of ₹10. The board declares a 5% dividend. What is the dividend per share?
Solution:
- Face value per share = ₹10.
- Rate of dividend = 5% = 0.05.
- Total dividend = 0.05 × ₹10 × 10,000 = ₹5,000.
- Dividend per share = ₹5,000 ÷ 10,000 = ₹0.50 per share.
So each shareholder gets fifty paise for every share they hold.
Types of Shares – Quick Comparison
| Feature | Equity (Ordinary) Share | Preference Share |
|---|---|---|
| Right to vote | Yes | No (usually) |
| Dividend priority | After preference | First, fixed rate |
| Risk level | Higher | Lower |
| Typical use | Growth companies | Stable income firms |
Bullet Summary – What to Remember
- Shares = tiny ownership pieces of a company.
- Dividends = profit shared with shareholders.
- Dividend per share = (Rate % × Face value × Total shares) ÷ Total shares.
- Remember the formula: DPS = (Rate % × Face value) / 100 when total shares cancel out.
- Preference shares get a fixed dividend before equity shares.
📝 Likely Exam Questions
- Question: A company has 5,000 shares of ₹20 each. It declares a 4% dividend. Find the dividend per share.
Answer: DPS = 0.04 × ₹20 = ₹0.80 per share. - Question: If the total dividend paid is ₹12,000 and there are 8,000 shares, what is the rate of dividend? (Face value = ₹10)
Answer: Total dividend = Rate % × Face value × No. of shares → Rate % = ₹12,000 ÷ (₹10 × 8,000) = 0.15 = 15%. - Question: Explain why preference shareholders receive dividend before equity shareholders.
Answer: Preference shares have a fixed dividend right attached; they are like a senior loan, so the company must pay them first. - Question: A company’s profit is ₹50,000. It decides to retain 60% and distribute the rest as dividend among 10,000 shares of ₹5 each. Find the dividend per share.
Answer: Dividend pool = 40% of ₹50,000 = ₹20,000. DPS = ₹20,000 ÷ 10,000 = ₹2 per share. - Question: Differentiate between equity share and preference share in two points.
Answer: (i) Equity shares carry voting rights; preference shares usually do not. (ii) Preference shares receive a fixed dividend before equity shares; equity shares get the remainder.