Ever wondered how a tiny piece of a big company can turn into pocket money?
💡 In Simple Words: A share is like a slice of pizza that belongs to a company. If the pizza shop earns money, it may share some of the profit with you – that’s called a dividend.
What is a Share?
A share (also called a stock) represents one unit of ownership in a company. Think of a company as a giant cake. When the cake is cut into equal pieces, each piece is a share. Owning a share means you own a tiny part of the whole business.
Key terms:
- Face value (or nominal value): the original price printed on the share certificate. It’s like the label on a candy that says "cost $1".
- Market price: the price at which the share actually trades in the stock market. This can be higher or lower than the face value.
What is a Dividend?
A dividend is the portion of a company’s profit that is given back to its shareholders. Imagine the company makes a profit of $10,000 and decides to share 10% of that with the owners. Each owner gets a slice of the profit based on how many shares they hold.
Dividends are usually paid in cash, but sometimes they can be extra shares.
How to Calculate Dividend per Share
The basic formula is:
Dividend per share = (Total dividend amount) ÷ (Number of shares)
Let’s break it down with a quick flowchart.
Worked Example 1: Simple Profit Sharing
ABC Ltd. earned a net profit of ₹50,000 for the year. The board decided to give a 10% dividend. The company has 5,000 shares outstanding.
- Find total dividend: 10% of ₹50,000 = 0.10 × 50,000 = ₹5,000.
- Dividend per share: ₹5,000 ÷ 5,000 shares = ₹1 per share.
If you own 200 shares, your cash dividend = 200 × ₹1 = ₹200.
Worked Example 2: Different Dividend Rate
XYZ Corp. reported a profit of ₹120,000. It announced a 5% dividend. There are 8,000 shares in total.
- Total dividend = 5% of 120,000 = 0.05 × 120,000 = ₹6,000.
- Dividend per share = 6,000 ÷ 8,000 = ₹0.75 per share.
- If you hold 1,000 shares, you receive 1,000 × 0.75 = ₹750.
Quick Comparison Table
| Aspect | Definition | Everyday Analogy |
|---|---|---|
| Share | One unit of ownership in a company | Slice of a pizza |
| Dividend | Profit shared with shareholders | Tip you get after a meal |
| Face Value | Original price printed on the share | Label on a candy |
| Market Price | Current trading price of the share | How much you actually pay at the shop |
Common Mistakes to Avoid
- Mixing up face value with market price – they are rarely the same.
- Forgetting to divide the total dividend by the *total* number of shares, not just the shares you own.
- Assuming a higher dividend % always means more money – a small profit can give a big % but still a tiny amount.
Bullet Summary
- Shares = ownership slices.
- Dividends = profit tips given per share.
- Formula: Dividend per share = (Profit × Dividend % ) ÷ Total shares.
- Check the company’s profit, announced % and total shares before calculating.
📝 Likely Exam Questions
- XYZ Ltd. earned a profit of ₹80,000 and declared a 12% dividend. There are 4,000 shares. Find the dividend per share and the amount received by a shareholder who owns 150 shares.
Answer: Total dividend = 0.12 × 80,000 = ₹9,600. Dividend per share = 9,600 ÷ 4,000 = ₹2.40. For 150 shares: 150 × 2.40 = ₹360. - Explain the difference between face value and market price of a share with a simple example.
- A company has a profit of ₹200,000 and decides to pay a dividend of 8%. If you own 500 shares out of 10,000 total, how much dividend will you receive?
- List two reasons why a company might choose not to pay any dividend in a particular year.
- Calculate the total dividend paid if a firm with 6,500 shares declares a dividend of ₹3 per share.