NCERT Textbook: Miscellaneous | Financial Literacy for Class 10 PDF Download

 Page 1


MISCELLANEOUS
Chapter 8
8.1    Corporate Actions
What are Corporate Actions?
What is meant by ‘Dividend’ declared by companies?
What is meant by Dividend yield?
Corporate actions tend to have a bearing on the price of a security. When a company announces 
a corporate action, it is initiating a process that will bring actual change to its securities either in 
terms of number of shares increasing in the hands on the shareholders or a change to the face 
value of the security or receiving shares of a new company by the shareholders as in the case of 
merger or acquisition etc. By understanding these different types of processes and their effects, 
an investor can have a clearer picture of what a corporate action indicates about a company’s 
financial affairs and how that action will influence the company’s share price and performance.
Corporate actions are typically agreed upon by a company’s Board of Directors and authorized by 
the shareholders. Some examples are dividends, stock splits, rights issues, bonus issues etc.
Returns received by investors in equities come in two forms a) growth in the value (market price) 
of the share and b) dividends. Dividend is distribution of part of a company’s earnings to 
shareholders, usually twice a year in the form of a final dividend and an interim dividend. 
Dividend is therefore a source of income for the shareholder. Normally, the dividend is expressed 
on a ‘per share’ basis, for instance - Rs.3 per share. This makes it easy to see how much of the 
company’s profits are being paid out, and how much are being retained by the company to 
plough back into the business. So a company that has earnings per share in the year of Rs.6 and 
pays out Rs.3 per share as a dividend is passing half of its profits on to shareholders and 
retaining the other half. Directors of a company have discretion as to how much of a dividend to 
declare or whether they should pay any dividend at all.
Dividend yield gives the relationship between the current price of a stock and the dividend paid 
by its’ issuing company during the last 12 months. It is calculated by aggregating past year’s 
dividend and dividing it by the current stock price.
Example:
ABC Co.
Share price: Rs.360
Annual dividend: Rs.10
Dividend yield: 2.77% (10/360)
Historically, a higher dividend yield has been considered to be desirable among investors. A high 
dividend yield is considered to be evidence that a stock is underpriced, whereas a low dividend 
yield is considered evidence that the stock is overpriced. A note of caution here though. There 
have been companies in the past which had a record of high dividend yield, only to go bust in 
later years. Dividend yield therefore can be only one of the factors in determining future 
performance of a company.
A stock split is a corporate action which splits the existing shares of a particular face value into 
smaller denominations so that the number of shares increase, however, the market capitalization 
or the value of shares held by the investors post split remains the same as that before the split. 
For e.g. If a company has issued 1,00,00,000 shares with a face value of Rs.10 and the current 
market price being Rs.100, a 2-for-l stock split would reduce the face value of the shares to 5 and 
increase the number of the company’s outstanding shares to 2,00,00,000, (1,00,00,000*(10/5)). 
Consequently, the share price would also halve to Rs.50 so that the market capitalization or the 
value shares held by an investor remains unchanged. It is the same thing as exchanging a Rs. 100 
note for two Rs.50 notes; the value remains the same.
Let us see the impact of this on the share holder: - Let’s say company ABC is trading at 
Rs.40 and has 100 million shares issued, which gives it a market capitalization of Rs.4000 
million (Rs. 40 x 100 million shares). An investor holds 400 shares of the company valued at 
Rs. 16,000. The company then decides to implement a 4-for-l stock split (i.e. a shareholder 
holding 1 share, will now hold 4 shares). For each share shareholders currently own, they 
receive three additional shares. The investor will therefore hold 1600 shares. So the investor 
gains 3 additional shares for each share held. But this does not impact the value of the shares 
th
held by the investor since post split, the price of the stock is also split by 25% (l/4 ), from Rs.40 
to Rs.10, therefore the investor continues to hold Rs.16,000 worth of shares. Notice that the 
market capitalization stays the same - it has increased the amount of stocks outstanding to 400 
million while simultaneously reducing the stock price by 25% to Rs.10 for a capitalization of Rs. 
4000 million. The true value of the company hasn’t changed.
An easy way to determine the new stock price is to divide the previous stock price by the split 
ratio. In the case of our example, divide Rs. 40 by 4 and we get the new trading price of Rs. 10. If 
a stock were to split 3-for-2, we’d do the same thing: 40/(3/2) = 40/1.5 = Rs. 26.60.
2-for-1 Split Pre-Split Post-Split
No. of shares 100 mill. 200 mill.
Share Price Rs. 40 Rs. 20
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
4-for-1
No. of shares 100 mill. 400 mill.
Share Price Rs. 40 Rs. 10
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
If the value of the stock doesn’t change, what motivates a company to split its stock? Though 
there are no theoretical reasons in financial literature to indicate the need for a stock split, 
generally, there are mainly two important reasons. As the price of a security gets higher and 
higher, some investors may feel the price is too high for them to buy, or small investors may feel 
it is unaffordable. Splitting the stock brings the share price down to a more “attractive” level. In 
What is a Stock Split?
Why do companies announce Stock Split?
Introduction to Financial Markets
45
Page 2


MISCELLANEOUS
Chapter 8
8.1    Corporate Actions
What are Corporate Actions?
What is meant by ‘Dividend’ declared by companies?
What is meant by Dividend yield?
Corporate actions tend to have a bearing on the price of a security. When a company announces 
a corporate action, it is initiating a process that will bring actual change to its securities either in 
terms of number of shares increasing in the hands on the shareholders or a change to the face 
value of the security or receiving shares of a new company by the shareholders as in the case of 
merger or acquisition etc. By understanding these different types of processes and their effects, 
an investor can have a clearer picture of what a corporate action indicates about a company’s 
financial affairs and how that action will influence the company’s share price and performance.
Corporate actions are typically agreed upon by a company’s Board of Directors and authorized by 
the shareholders. Some examples are dividends, stock splits, rights issues, bonus issues etc.
Returns received by investors in equities come in two forms a) growth in the value (market price) 
of the share and b) dividends. Dividend is distribution of part of a company’s earnings to 
shareholders, usually twice a year in the form of a final dividend and an interim dividend. 
Dividend is therefore a source of income for the shareholder. Normally, the dividend is expressed 
on a ‘per share’ basis, for instance - Rs.3 per share. This makes it easy to see how much of the 
company’s profits are being paid out, and how much are being retained by the company to 
plough back into the business. So a company that has earnings per share in the year of Rs.6 and 
pays out Rs.3 per share as a dividend is passing half of its profits on to shareholders and 
retaining the other half. Directors of a company have discretion as to how much of a dividend to 
declare or whether they should pay any dividend at all.
Dividend yield gives the relationship between the current price of a stock and the dividend paid 
by its’ issuing company during the last 12 months. It is calculated by aggregating past year’s 
dividend and dividing it by the current stock price.
Example:
ABC Co.
Share price: Rs.360
Annual dividend: Rs.10
Dividend yield: 2.77% (10/360)
Historically, a higher dividend yield has been considered to be desirable among investors. A high 
dividend yield is considered to be evidence that a stock is underpriced, whereas a low dividend 
yield is considered evidence that the stock is overpriced. A note of caution here though. There 
have been companies in the past which had a record of high dividend yield, only to go bust in 
later years. Dividend yield therefore can be only one of the factors in determining future 
performance of a company.
A stock split is a corporate action which splits the existing shares of a particular face value into 
smaller denominations so that the number of shares increase, however, the market capitalization 
or the value of shares held by the investors post split remains the same as that before the split. 
For e.g. If a company has issued 1,00,00,000 shares with a face value of Rs.10 and the current 
market price being Rs.100, a 2-for-l stock split would reduce the face value of the shares to 5 and 
increase the number of the company’s outstanding shares to 2,00,00,000, (1,00,00,000*(10/5)). 
Consequently, the share price would also halve to Rs.50 so that the market capitalization or the 
value shares held by an investor remains unchanged. It is the same thing as exchanging a Rs. 100 
note for two Rs.50 notes; the value remains the same.
Let us see the impact of this on the share holder: - Let’s say company ABC is trading at 
Rs.40 and has 100 million shares issued, which gives it a market capitalization of Rs.4000 
million (Rs. 40 x 100 million shares). An investor holds 400 shares of the company valued at 
Rs. 16,000. The company then decides to implement a 4-for-l stock split (i.e. a shareholder 
holding 1 share, will now hold 4 shares). For each share shareholders currently own, they 
receive three additional shares. The investor will therefore hold 1600 shares. So the investor 
gains 3 additional shares for each share held. But this does not impact the value of the shares 
th
held by the investor since post split, the price of the stock is also split by 25% (l/4 ), from Rs.40 
to Rs.10, therefore the investor continues to hold Rs.16,000 worth of shares. Notice that the 
market capitalization stays the same - it has increased the amount of stocks outstanding to 400 
million while simultaneously reducing the stock price by 25% to Rs.10 for a capitalization of Rs. 
4000 million. The true value of the company hasn’t changed.
An easy way to determine the new stock price is to divide the previous stock price by the split 
ratio. In the case of our example, divide Rs. 40 by 4 and we get the new trading price of Rs. 10. If 
a stock were to split 3-for-2, we’d do the same thing: 40/(3/2) = 40/1.5 = Rs. 26.60.
2-for-1 Split Pre-Split Post-Split
No. of shares 100 mill. 200 mill.
Share Price Rs. 40 Rs. 20
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
4-for-1
No. of shares 100 mill. 400 mill.
Share Price Rs. 40 Rs. 10
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
If the value of the stock doesn’t change, what motivates a company to split its stock? Though 
there are no theoretical reasons in financial literature to indicate the need for a stock split, 
generally, there are mainly two important reasons. As the price of a security gets higher and 
higher, some investors may feel the price is too high for them to buy, or small investors may feel 
it is unaffordable. Splitting the stock brings the share price down to a more “attractive” level. In 
What is a Stock Split?
Why do companies announce Stock Split?
Introduction to Financial Markets
45
MISCELLANEOUS
Chapter 8
8.1    Corporate Actions
What are Corporate Actions?
What is meant by ‘Dividend’ declared by companies?
What is meant by Dividend yield?
Corporate actions tend to have a bearing on the price of a security. When a company announces 
a corporate action, it is initiating a process that will bring actual change to its securities either in 
terms of number of shares increasing in the hands on the shareholders or a change to the face 
value of the security or receiving shares of a new company by the shareholders as in the case of 
merger or acquisition etc. By understanding these different types of processes and their effects, 
an investor can have a clearer picture of what a corporate action indicates about a company’s 
financial affairs and how that action will influence the company’s share price and performance.
Corporate actions are typically agreed upon by a company’s Board of Directors and authorized by 
the shareholders. Some examples are dividends, stock splits, rights issues, bonus issues etc.
Returns received by investors in equities come in two forms a) growth in the value (market price) 
of the share and b) dividends. Dividend is distribution of part of a company’s earnings to 
shareholders, usually twice a year in the form of a final dividend and an interim dividend. 
Dividend is therefore a source of income for the shareholder. Normally, the dividend is expressed 
on a ‘per share’ basis, for instance - Rs.3 per share. This makes it easy to see how much of the 
company’s profits are being paid out, and how much are being retained by the company to 
plough back into the business. So a company that has earnings per share in the year of Rs.6 and 
pays out Rs.3 per share as a dividend is passing half of its profits on to shareholders and 
retaining the other half. Directors of a company have discretion as to how much of a dividend to 
declare or whether they should pay any dividend at all.
Dividend yield gives the relationship between the current price of a stock and the dividend paid 
by its’ issuing company during the last 12 months. It is calculated by aggregating past year’s 
dividend and dividing it by the current stock price.
Example:
ABC Co.
Share price: Rs.360
Annual dividend: Rs.10
Dividend yield: 2.77% (10/360)
Historically, a higher dividend yield has been considered to be desirable among investors. A high 
dividend yield is considered to be evidence that a stock is underpriced, whereas a low dividend 
yield is considered evidence that the stock is overpriced. A note of caution here though. There 
have been companies in the past which had a record of high dividend yield, only to go bust in 
later years. Dividend yield therefore can be only one of the factors in determining future 
performance of a company.
A stock split is a corporate action which splits the existing shares of a particular face value into 
smaller denominations so that the number of shares increase, however, the market capitalization 
or the value of shares held by the investors post split remains the same as that before the split. 
For e.g. If a company has issued 1,00,00,000 shares with a face value of Rs.10 and the current 
market price being Rs.100, a 2-for-l stock split would reduce the face value of the shares to 5 and 
increase the number of the company’s outstanding shares to 2,00,00,000, (1,00,00,000*(10/5)). 
Consequently, the share price would also halve to Rs.50 so that the market capitalization or the 
value shares held by an investor remains unchanged. It is the same thing as exchanging a Rs. 100 
note for two Rs.50 notes; the value remains the same.
Let us see the impact of this on the share holder: - Let’s say company ABC is trading at 
Rs.40 and has 100 million shares issued, which gives it a market capitalization of Rs.4000 
million (Rs. 40 x 100 million shares). An investor holds 400 shares of the company valued at 
Rs. 16,000. The company then decides to implement a 4-for-l stock split (i.e. a shareholder 
holding 1 share, will now hold 4 shares). For each share shareholders currently own, they 
receive three additional shares. The investor will therefore hold 1600 shares. So the investor 
gains 3 additional shares for each share held. But this does not impact the value of the shares 
th
held by the investor since post split, the price of the stock is also split by 25% (l/4 ), from Rs.40 
to Rs.10, therefore the investor continues to hold Rs.16,000 worth of shares. Notice that the 
market capitalization stays the same - it has increased the amount of stocks outstanding to 400 
million while simultaneously reducing the stock price by 25% to Rs.10 for a capitalization of Rs. 
4000 million. The true value of the company hasn’t changed.
An easy way to determine the new stock price is to divide the previous stock price by the split 
ratio. In the case of our example, divide Rs. 40 by 4 and we get the new trading price of Rs. 10. If 
a stock were to split 3-for-2, we’d do the same thing: 40/(3/2) = 40/1.5 = Rs. 26.60.
2-for-1 Split Pre-Split Post-Split
No. of shares 100 mill. 200 mill.
Share Price Rs. 40 Rs. 20
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
4-for-1
No. of shares 100 mill. 400 mill.
Share Price Rs. 40 Rs. 10
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
If the value of the stock doesn’t change, what motivates a company to split its stock? Though 
there are no theoretical reasons in financial literature to indicate the need for a stock split, 
generally, there are mainly two important reasons. As the price of a security gets higher and 
higher, some investors may feel the price is too high for them to buy, or small investors may feel 
it is unaffordable. Splitting the stock brings the share price down to a more “attractive” level. In 
What is a Stock Split?
Why do companies announce Stock Split?
44
Page 3


MISCELLANEOUS
Chapter 8
8.1    Corporate Actions
What are Corporate Actions?
What is meant by ‘Dividend’ declared by companies?
What is meant by Dividend yield?
Corporate actions tend to have a bearing on the price of a security. When a company announces 
a corporate action, it is initiating a process that will bring actual change to its securities either in 
terms of number of shares increasing in the hands on the shareholders or a change to the face 
value of the security or receiving shares of a new company by the shareholders as in the case of 
merger or acquisition etc. By understanding these different types of processes and their effects, 
an investor can have a clearer picture of what a corporate action indicates about a company’s 
financial affairs and how that action will influence the company’s share price and performance.
Corporate actions are typically agreed upon by a company’s Board of Directors and authorized by 
the shareholders. Some examples are dividends, stock splits, rights issues, bonus issues etc.
Returns received by investors in equities come in two forms a) growth in the value (market price) 
of the share and b) dividends. Dividend is distribution of part of a company’s earnings to 
shareholders, usually twice a year in the form of a final dividend and an interim dividend. 
Dividend is therefore a source of income for the shareholder. Normally, the dividend is expressed 
on a ‘per share’ basis, for instance - Rs.3 per share. This makes it easy to see how much of the 
company’s profits are being paid out, and how much are being retained by the company to 
plough back into the business. So a company that has earnings per share in the year of Rs.6 and 
pays out Rs.3 per share as a dividend is passing half of its profits on to shareholders and 
retaining the other half. Directors of a company have discretion as to how much of a dividend to 
declare or whether they should pay any dividend at all.
Dividend yield gives the relationship between the current price of a stock and the dividend paid 
by its’ issuing company during the last 12 months. It is calculated by aggregating past year’s 
dividend and dividing it by the current stock price.
Example:
ABC Co.
Share price: Rs.360
Annual dividend: Rs.10
Dividend yield: 2.77% (10/360)
Historically, a higher dividend yield has been considered to be desirable among investors. A high 
dividend yield is considered to be evidence that a stock is underpriced, whereas a low dividend 
yield is considered evidence that the stock is overpriced. A note of caution here though. There 
have been companies in the past which had a record of high dividend yield, only to go bust in 
later years. Dividend yield therefore can be only one of the factors in determining future 
performance of a company.
A stock split is a corporate action which splits the existing shares of a particular face value into 
smaller denominations so that the number of shares increase, however, the market capitalization 
or the value of shares held by the investors post split remains the same as that before the split. 
For e.g. If a company has issued 1,00,00,000 shares with a face value of Rs.10 and the current 
market price being Rs.100, a 2-for-l stock split would reduce the face value of the shares to 5 and 
increase the number of the company’s outstanding shares to 2,00,00,000, (1,00,00,000*(10/5)). 
Consequently, the share price would also halve to Rs.50 so that the market capitalization or the 
value shares held by an investor remains unchanged. It is the same thing as exchanging a Rs. 100 
note for two Rs.50 notes; the value remains the same.
Let us see the impact of this on the share holder: - Let’s say company ABC is trading at 
Rs.40 and has 100 million shares issued, which gives it a market capitalization of Rs.4000 
million (Rs. 40 x 100 million shares). An investor holds 400 shares of the company valued at 
Rs. 16,000. The company then decides to implement a 4-for-l stock split (i.e. a shareholder 
holding 1 share, will now hold 4 shares). For each share shareholders currently own, they 
receive three additional shares. The investor will therefore hold 1600 shares. So the investor 
gains 3 additional shares for each share held. But this does not impact the value of the shares 
th
held by the investor since post split, the price of the stock is also split by 25% (l/4 ), from Rs.40 
to Rs.10, therefore the investor continues to hold Rs.16,000 worth of shares. Notice that the 
market capitalization stays the same - it has increased the amount of stocks outstanding to 400 
million while simultaneously reducing the stock price by 25% to Rs.10 for a capitalization of Rs. 
4000 million. The true value of the company hasn’t changed.
An easy way to determine the new stock price is to divide the previous stock price by the split 
ratio. In the case of our example, divide Rs. 40 by 4 and we get the new trading price of Rs. 10. If 
a stock were to split 3-for-2, we’d do the same thing: 40/(3/2) = 40/1.5 = Rs. 26.60.
2-for-1 Split Pre-Split Post-Split
No. of shares 100 mill. 200 mill.
Share Price Rs. 40 Rs. 20
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
4-for-1
No. of shares 100 mill. 400 mill.
Share Price Rs. 40 Rs. 10
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
If the value of the stock doesn’t change, what motivates a company to split its stock? Though 
there are no theoretical reasons in financial literature to indicate the need for a stock split, 
generally, there are mainly two important reasons. As the price of a security gets higher and 
higher, some investors may feel the price is too high for them to buy, or small investors may feel 
it is unaffordable. Splitting the stock brings the share price down to a more “attractive” level. In 
What is a Stock Split?
Why do companies announce Stock Split?
Introduction to Financial Markets
45
MISCELLANEOUS
Chapter 8
8.1    Corporate Actions
What are Corporate Actions?
What is meant by ‘Dividend’ declared by companies?
What is meant by Dividend yield?
Corporate actions tend to have a bearing on the price of a security. When a company announces 
a corporate action, it is initiating a process that will bring actual change to its securities either in 
terms of number of shares increasing in the hands on the shareholders or a change to the face 
value of the security or receiving shares of a new company by the shareholders as in the case of 
merger or acquisition etc. By understanding these different types of processes and their effects, 
an investor can have a clearer picture of what a corporate action indicates about a company’s 
financial affairs and how that action will influence the company’s share price and performance.
Corporate actions are typically agreed upon by a company’s Board of Directors and authorized by 
the shareholders. Some examples are dividends, stock splits, rights issues, bonus issues etc.
Returns received by investors in equities come in two forms a) growth in the value (market price) 
of the share and b) dividends. Dividend is distribution of part of a company’s earnings to 
shareholders, usually twice a year in the form of a final dividend and an interim dividend. 
Dividend is therefore a source of income for the shareholder. Normally, the dividend is expressed 
on a ‘per share’ basis, for instance - Rs.3 per share. This makes it easy to see how much of the 
company’s profits are being paid out, and how much are being retained by the company to 
plough back into the business. So a company that has earnings per share in the year of Rs.6 and 
pays out Rs.3 per share as a dividend is passing half of its profits on to shareholders and 
retaining the other half. Directors of a company have discretion as to how much of a dividend to 
declare or whether they should pay any dividend at all.
Dividend yield gives the relationship between the current price of a stock and the dividend paid 
by its’ issuing company during the last 12 months. It is calculated by aggregating past year’s 
dividend and dividing it by the current stock price.
Example:
ABC Co.
Share price: Rs.360
Annual dividend: Rs.10
Dividend yield: 2.77% (10/360)
Historically, a higher dividend yield has been considered to be desirable among investors. A high 
dividend yield is considered to be evidence that a stock is underpriced, whereas a low dividend 
yield is considered evidence that the stock is overpriced. A note of caution here though. There 
have been companies in the past which had a record of high dividend yield, only to go bust in 
later years. Dividend yield therefore can be only one of the factors in determining future 
performance of a company.
A stock split is a corporate action which splits the existing shares of a particular face value into 
smaller denominations so that the number of shares increase, however, the market capitalization 
or the value of shares held by the investors post split remains the same as that before the split. 
For e.g. If a company has issued 1,00,00,000 shares with a face value of Rs.10 and the current 
market price being Rs.100, a 2-for-l stock split would reduce the face value of the shares to 5 and 
increase the number of the company’s outstanding shares to 2,00,00,000, (1,00,00,000*(10/5)). 
Consequently, the share price would also halve to Rs.50 so that the market capitalization or the 
value shares held by an investor remains unchanged. It is the same thing as exchanging a Rs. 100 
note for two Rs.50 notes; the value remains the same.
Let us see the impact of this on the share holder: - Let’s say company ABC is trading at 
Rs.40 and has 100 million shares issued, which gives it a market capitalization of Rs.4000 
million (Rs. 40 x 100 million shares). An investor holds 400 shares of the company valued at 
Rs. 16,000. The company then decides to implement a 4-for-l stock split (i.e. a shareholder 
holding 1 share, will now hold 4 shares). For each share shareholders currently own, they 
receive three additional shares. The investor will therefore hold 1600 shares. So the investor 
gains 3 additional shares for each share held. But this does not impact the value of the shares 
th
held by the investor since post split, the price of the stock is also split by 25% (l/4 ), from Rs.40 
to Rs.10, therefore the investor continues to hold Rs.16,000 worth of shares. Notice that the 
market capitalization stays the same - it has increased the amount of stocks outstanding to 400 
million while simultaneously reducing the stock price by 25% to Rs.10 for a capitalization of Rs. 
4000 million. The true value of the company hasn’t changed.
An easy way to determine the new stock price is to divide the previous stock price by the split 
ratio. In the case of our example, divide Rs. 40 by 4 and we get the new trading price of Rs. 10. If 
a stock were to split 3-for-2, we’d do the same thing: 40/(3/2) = 40/1.5 = Rs. 26.60.
2-for-1 Split Pre-Split Post-Split
No. of shares 100 mill. 200 mill.
Share Price Rs. 40 Rs. 20
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
4-for-1
No. of shares 100 mill. 400 mill.
Share Price Rs. 40 Rs. 10
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
If the value of the stock doesn’t change, what motivates a company to split its stock? Though 
there are no theoretical reasons in financial literature to indicate the need for a stock split, 
generally, there are mainly two important reasons. As the price of a security gets higher and 
higher, some investors may feel the price is too high for them to buy, or small investors may feel 
it is unaffordable. Splitting the stock brings the share price down to a more “attractive” level. In 
What is a Stock Split?
Why do companies announce Stock Split?
44
our earlier example to buy 1 share of company ABC you need Rs. 40 pre-split, but after the stock 
split the same number of shares can be bought for Rs.10, making it attractive for more investors 
to buy the share. This leads us to the second reason. Splitting a stock may lead to increase in the 
stock’s liquidity, since more investors are able to afford the share and the total outstanding shares 
of the company have also increased in the market.
A buyback can be seen as a method for company to invest in itself by buying shares from other 
investors in the market. Buybacks reduce the number of shares outstanding in the market. Buy 
back is done by the company with the purpose to improve the liquidity in its shares and enhance 
the shareholders’ wealth. Under the SEBI (Buy Back of Securities) Regulation, 1998, a company 
is permitted to buy back its share from:
a) Existing  shareholders  on  a  proportionate  basis through  the  offer document.
b) Open market through stock exchanges using book building process.
c) Shareholders holding odd lot shares.
The company has to disclose the pre and post-buyback holding of the promoters. To ensure 
completion of the buyback process speedily, the regulations have stipulated time limit for each 
step. For example, in the cases of purchases through stock exchanges, an offer for buy back 
should not remain open for more than 30 days. The verification of shares received in buy back 
has to be completed within 15 days of the closure of the offer. The payments for accepted 
securities has to be made within 7 days of the completion of verification and bought back shares 
have to be extinguished within 7 days of the date of the payment.
CNX Nifty (Nifty), is a scientifically developed, 50 stock index, reflecting accurately the market 
movement of the Indian markets. It comprises of some of the largest and most liquid stocks 
traded on the NSE. It is maintained by India Index Services & Products Ltd. (IISL) which is a 
group company of NSE. Nifty is the barometer of the Indian markets.
A Clearing Corporation is a part of an exchange or a separate entity and performs three 
functions, namely, it clears and settles all transactions, i.e. completes the process of receiving 
and delivering shares/funds to the buyers and sellers in the market, it provides financial 
guarantee for all transactions executed on the exchange and provides risk management 
functions. National Securities Clearing Corporation Limited (NSCCL), a 100% subsidiary of NSE, 
performs the role of a Clearing Corporation for transactions executed on the NSE.
Under rolling settlement all open positions at the end of the day mandatorily result in payment/ 
delivery ‘n’ days later. Currently trades in rolling settlement are settled on T+2 basis where T is 
the trade day. For example, a trade executed on Monday is mandatorily settled by Wednesday 
What is Buyback of Shares?
What is the Nifty index?
What is a Clearing Corporation?
What is Rolling Settlement?
8.2    Index
8.3    Clearing & Settlement and Redressal
(considering two working days from the trade day). The funds and securities pay-in and pay-out 
are carried out on T+2 days.
Pay-in day is the day when the securities sold are delivered to the exchange by the sellers and 
funds for the securities purchased are made available to the exchange by the buyers.
Pay-out day is the day the securities purchased are delivered to the buyers and the funds for the 
securities sold are given to the sellers by the exchange.
At present the pay-in and pay-out happens on the 2nd working day after the trade is executed on 
the stock exchange.
On account of non-delivery of securities by the trading member on the pay-in day, the securities 
are put up for auction by the Exchange. This ensures that the buying trading member receives 
the securities. The Exchange purchases the requisite quantity in auction market and gives them 
to the buying trading member.
Book closure and record date help a company determine exactly the shareholders of a company 
as on a given date. Book closure refers to the closing of the register of the names of investors in 
the records of a company. Companies announce book closure dates from time to time. The 
benefits of dividends, bonus issues, rights issue accrue to investors whose name appears on the 
company’s records as on a given date which is known as the record date and is declared in 
advance by the company so that buyers have enough time to buy the shares, get them registered 
in the books of the company and become entitled for the benefits such as bonus, rights, 
dividends etc. With the depositories now in place, the buyers need not send shares physically to 
the companies for registration. This is taken care by the depository since they have the records of 
investor holdings as on a particular date electronically with them.
Whenever a company announces a book closure or record date, the exchange sets up a no-
delivery period for that security. During this period only trading is permitted in the security. 
However, these trades are settled only after the no-delivery period is over. This is done to ensure 
that investor’s entitlement for the corporate benefit is clearly determined.
The date on or after which a security begins trading without the dividend included in the price, 
i.e. buyers of the shares will no longer be entitled for the dividend which has been declared 
recently by the company, in case they buy on or after the ex-dividend date.
The first day of the no-delivery period is the ex-date. If there is any corporate benefits such as 
rights, bonus, dividend announced for which book closure/record date is fixed, the buyer of the 
shares on or after the ex-date will not be eligible for the benefits.
What is Pay-in and Pay-out?
What is an Auction?
What is a Book-closure/Record date?
What is a No-delivery period?
What is an Ex-dividend date?
What is an Ex-date?
Introduction to Financial Markets
47
Page 4


MISCELLANEOUS
Chapter 8
8.1    Corporate Actions
What are Corporate Actions?
What is meant by ‘Dividend’ declared by companies?
What is meant by Dividend yield?
Corporate actions tend to have a bearing on the price of a security. When a company announces 
a corporate action, it is initiating a process that will bring actual change to its securities either in 
terms of number of shares increasing in the hands on the shareholders or a change to the face 
value of the security or receiving shares of a new company by the shareholders as in the case of 
merger or acquisition etc. By understanding these different types of processes and their effects, 
an investor can have a clearer picture of what a corporate action indicates about a company’s 
financial affairs and how that action will influence the company’s share price and performance.
Corporate actions are typically agreed upon by a company’s Board of Directors and authorized by 
the shareholders. Some examples are dividends, stock splits, rights issues, bonus issues etc.
Returns received by investors in equities come in two forms a) growth in the value (market price) 
of the share and b) dividends. Dividend is distribution of part of a company’s earnings to 
shareholders, usually twice a year in the form of a final dividend and an interim dividend. 
Dividend is therefore a source of income for the shareholder. Normally, the dividend is expressed 
on a ‘per share’ basis, for instance - Rs.3 per share. This makes it easy to see how much of the 
company’s profits are being paid out, and how much are being retained by the company to 
plough back into the business. So a company that has earnings per share in the year of Rs.6 and 
pays out Rs.3 per share as a dividend is passing half of its profits on to shareholders and 
retaining the other half. Directors of a company have discretion as to how much of a dividend to 
declare or whether they should pay any dividend at all.
Dividend yield gives the relationship between the current price of a stock and the dividend paid 
by its’ issuing company during the last 12 months. It is calculated by aggregating past year’s 
dividend and dividing it by the current stock price.
Example:
ABC Co.
Share price: Rs.360
Annual dividend: Rs.10
Dividend yield: 2.77% (10/360)
Historically, a higher dividend yield has been considered to be desirable among investors. A high 
dividend yield is considered to be evidence that a stock is underpriced, whereas a low dividend 
yield is considered evidence that the stock is overpriced. A note of caution here though. There 
have been companies in the past which had a record of high dividend yield, only to go bust in 
later years. Dividend yield therefore can be only one of the factors in determining future 
performance of a company.
A stock split is a corporate action which splits the existing shares of a particular face value into 
smaller denominations so that the number of shares increase, however, the market capitalization 
or the value of shares held by the investors post split remains the same as that before the split. 
For e.g. If a company has issued 1,00,00,000 shares with a face value of Rs.10 and the current 
market price being Rs.100, a 2-for-l stock split would reduce the face value of the shares to 5 and 
increase the number of the company’s outstanding shares to 2,00,00,000, (1,00,00,000*(10/5)). 
Consequently, the share price would also halve to Rs.50 so that the market capitalization or the 
value shares held by an investor remains unchanged. It is the same thing as exchanging a Rs. 100 
note for two Rs.50 notes; the value remains the same.
Let us see the impact of this on the share holder: - Let’s say company ABC is trading at 
Rs.40 and has 100 million shares issued, which gives it a market capitalization of Rs.4000 
million (Rs. 40 x 100 million shares). An investor holds 400 shares of the company valued at 
Rs. 16,000. The company then decides to implement a 4-for-l stock split (i.e. a shareholder 
holding 1 share, will now hold 4 shares). For each share shareholders currently own, they 
receive three additional shares. The investor will therefore hold 1600 shares. So the investor 
gains 3 additional shares for each share held. But this does not impact the value of the shares 
th
held by the investor since post split, the price of the stock is also split by 25% (l/4 ), from Rs.40 
to Rs.10, therefore the investor continues to hold Rs.16,000 worth of shares. Notice that the 
market capitalization stays the same - it has increased the amount of stocks outstanding to 400 
million while simultaneously reducing the stock price by 25% to Rs.10 for a capitalization of Rs. 
4000 million. The true value of the company hasn’t changed.
An easy way to determine the new stock price is to divide the previous stock price by the split 
ratio. In the case of our example, divide Rs. 40 by 4 and we get the new trading price of Rs. 10. If 
a stock were to split 3-for-2, we’d do the same thing: 40/(3/2) = 40/1.5 = Rs. 26.60.
2-for-1 Split Pre-Split Post-Split
No. of shares 100 mill. 200 mill.
Share Price Rs. 40 Rs. 20
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
4-for-1
No. of shares 100 mill. 400 mill.
Share Price Rs. 40 Rs. 10
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
If the value of the stock doesn’t change, what motivates a company to split its stock? Though 
there are no theoretical reasons in financial literature to indicate the need for a stock split, 
generally, there are mainly two important reasons. As the price of a security gets higher and 
higher, some investors may feel the price is too high for them to buy, or small investors may feel 
it is unaffordable. Splitting the stock brings the share price down to a more “attractive” level. In 
What is a Stock Split?
Why do companies announce Stock Split?
Introduction to Financial Markets
45
MISCELLANEOUS
Chapter 8
8.1    Corporate Actions
What are Corporate Actions?
What is meant by ‘Dividend’ declared by companies?
What is meant by Dividend yield?
Corporate actions tend to have a bearing on the price of a security. When a company announces 
a corporate action, it is initiating a process that will bring actual change to its securities either in 
terms of number of shares increasing in the hands on the shareholders or a change to the face 
value of the security or receiving shares of a new company by the shareholders as in the case of 
merger or acquisition etc. By understanding these different types of processes and their effects, 
an investor can have a clearer picture of what a corporate action indicates about a company’s 
financial affairs and how that action will influence the company’s share price and performance.
Corporate actions are typically agreed upon by a company’s Board of Directors and authorized by 
the shareholders. Some examples are dividends, stock splits, rights issues, bonus issues etc.
Returns received by investors in equities come in two forms a) growth in the value (market price) 
of the share and b) dividends. Dividend is distribution of part of a company’s earnings to 
shareholders, usually twice a year in the form of a final dividend and an interim dividend. 
Dividend is therefore a source of income for the shareholder. Normally, the dividend is expressed 
on a ‘per share’ basis, for instance - Rs.3 per share. This makes it easy to see how much of the 
company’s profits are being paid out, and how much are being retained by the company to 
plough back into the business. So a company that has earnings per share in the year of Rs.6 and 
pays out Rs.3 per share as a dividend is passing half of its profits on to shareholders and 
retaining the other half. Directors of a company have discretion as to how much of a dividend to 
declare or whether they should pay any dividend at all.
Dividend yield gives the relationship between the current price of a stock and the dividend paid 
by its’ issuing company during the last 12 months. It is calculated by aggregating past year’s 
dividend and dividing it by the current stock price.
Example:
ABC Co.
Share price: Rs.360
Annual dividend: Rs.10
Dividend yield: 2.77% (10/360)
Historically, a higher dividend yield has been considered to be desirable among investors. A high 
dividend yield is considered to be evidence that a stock is underpriced, whereas a low dividend 
yield is considered evidence that the stock is overpriced. A note of caution here though. There 
have been companies in the past which had a record of high dividend yield, only to go bust in 
later years. Dividend yield therefore can be only one of the factors in determining future 
performance of a company.
A stock split is a corporate action which splits the existing shares of a particular face value into 
smaller denominations so that the number of shares increase, however, the market capitalization 
or the value of shares held by the investors post split remains the same as that before the split. 
For e.g. If a company has issued 1,00,00,000 shares with a face value of Rs.10 and the current 
market price being Rs.100, a 2-for-l stock split would reduce the face value of the shares to 5 and 
increase the number of the company’s outstanding shares to 2,00,00,000, (1,00,00,000*(10/5)). 
Consequently, the share price would also halve to Rs.50 so that the market capitalization or the 
value shares held by an investor remains unchanged. It is the same thing as exchanging a Rs. 100 
note for two Rs.50 notes; the value remains the same.
Let us see the impact of this on the share holder: - Let’s say company ABC is trading at 
Rs.40 and has 100 million shares issued, which gives it a market capitalization of Rs.4000 
million (Rs. 40 x 100 million shares). An investor holds 400 shares of the company valued at 
Rs. 16,000. The company then decides to implement a 4-for-l stock split (i.e. a shareholder 
holding 1 share, will now hold 4 shares). For each share shareholders currently own, they 
receive three additional shares. The investor will therefore hold 1600 shares. So the investor 
gains 3 additional shares for each share held. But this does not impact the value of the shares 
th
held by the investor since post split, the price of the stock is also split by 25% (l/4 ), from Rs.40 
to Rs.10, therefore the investor continues to hold Rs.16,000 worth of shares. Notice that the 
market capitalization stays the same - it has increased the amount of stocks outstanding to 400 
million while simultaneously reducing the stock price by 25% to Rs.10 for a capitalization of Rs. 
4000 million. The true value of the company hasn’t changed.
An easy way to determine the new stock price is to divide the previous stock price by the split 
ratio. In the case of our example, divide Rs. 40 by 4 and we get the new trading price of Rs. 10. If 
a stock were to split 3-for-2, we’d do the same thing: 40/(3/2) = 40/1.5 = Rs. 26.60.
2-for-1 Split Pre-Split Post-Split
No. of shares 100 mill. 200 mill.
Share Price Rs. 40 Rs. 20
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
4-for-1
No. of shares 100 mill. 400 mill.
Share Price Rs. 40 Rs. 10
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
If the value of the stock doesn’t change, what motivates a company to split its stock? Though 
there are no theoretical reasons in financial literature to indicate the need for a stock split, 
generally, there are mainly two important reasons. As the price of a security gets higher and 
higher, some investors may feel the price is too high for them to buy, or small investors may feel 
it is unaffordable. Splitting the stock brings the share price down to a more “attractive” level. In 
What is a Stock Split?
Why do companies announce Stock Split?
44
our earlier example to buy 1 share of company ABC you need Rs. 40 pre-split, but after the stock 
split the same number of shares can be bought for Rs.10, making it attractive for more investors 
to buy the share. This leads us to the second reason. Splitting a stock may lead to increase in the 
stock’s liquidity, since more investors are able to afford the share and the total outstanding shares 
of the company have also increased in the market.
A buyback can be seen as a method for company to invest in itself by buying shares from other 
investors in the market. Buybacks reduce the number of shares outstanding in the market. Buy 
back is done by the company with the purpose to improve the liquidity in its shares and enhance 
the shareholders’ wealth. Under the SEBI (Buy Back of Securities) Regulation, 1998, a company 
is permitted to buy back its share from:
a) Existing  shareholders  on  a  proportionate  basis through  the  offer document.
b) Open market through stock exchanges using book building process.
c) Shareholders holding odd lot shares.
The company has to disclose the pre and post-buyback holding of the promoters. To ensure 
completion of the buyback process speedily, the regulations have stipulated time limit for each 
step. For example, in the cases of purchases through stock exchanges, an offer for buy back 
should not remain open for more than 30 days. The verification of shares received in buy back 
has to be completed within 15 days of the closure of the offer. The payments for accepted 
securities has to be made within 7 days of the completion of verification and bought back shares 
have to be extinguished within 7 days of the date of the payment.
CNX Nifty (Nifty), is a scientifically developed, 50 stock index, reflecting accurately the market 
movement of the Indian markets. It comprises of some of the largest and most liquid stocks 
traded on the NSE. It is maintained by India Index Services & Products Ltd. (IISL) which is a 
group company of NSE. Nifty is the barometer of the Indian markets.
A Clearing Corporation is a part of an exchange or a separate entity and performs three 
functions, namely, it clears and settles all transactions, i.e. completes the process of receiving 
and delivering shares/funds to the buyers and sellers in the market, it provides financial 
guarantee for all transactions executed on the exchange and provides risk management 
functions. National Securities Clearing Corporation Limited (NSCCL), a 100% subsidiary of NSE, 
performs the role of a Clearing Corporation for transactions executed on the NSE.
Under rolling settlement all open positions at the end of the day mandatorily result in payment/ 
delivery ‘n’ days later. Currently trades in rolling settlement are settled on T+2 basis where T is 
the trade day. For example, a trade executed on Monday is mandatorily settled by Wednesday 
What is Buyback of Shares?
What is the Nifty index?
What is a Clearing Corporation?
What is Rolling Settlement?
8.2    Index
8.3    Clearing & Settlement and Redressal
(considering two working days from the trade day). The funds and securities pay-in and pay-out 
are carried out on T+2 days.
Pay-in day is the day when the securities sold are delivered to the exchange by the sellers and 
funds for the securities purchased are made available to the exchange by the buyers.
Pay-out day is the day the securities purchased are delivered to the buyers and the funds for the 
securities sold are given to the sellers by the exchange.
At present the pay-in and pay-out happens on the 2nd working day after the trade is executed on 
the stock exchange.
On account of non-delivery of securities by the trading member on the pay-in day, the securities 
are put up for auction by the Exchange. This ensures that the buying trading member receives 
the securities. The Exchange purchases the requisite quantity in auction market and gives them 
to the buying trading member.
Book closure and record date help a company determine exactly the shareholders of a company 
as on a given date. Book closure refers to the closing of the register of the names of investors in 
the records of a company. Companies announce book closure dates from time to time. The 
benefits of dividends, bonus issues, rights issue accrue to investors whose name appears on the 
company’s records as on a given date which is known as the record date and is declared in 
advance by the company so that buyers have enough time to buy the shares, get them registered 
in the books of the company and become entitled for the benefits such as bonus, rights, 
dividends etc. With the depositories now in place, the buyers need not send shares physically to 
the companies for registration. This is taken care by the depository since they have the records of 
investor holdings as on a particular date electronically with them.
Whenever a company announces a book closure or record date, the exchange sets up a no-
delivery period for that security. During this period only trading is permitted in the security. 
However, these trades are settled only after the no-delivery period is over. This is done to ensure 
that investor’s entitlement for the corporate benefit is clearly determined.
The date on or after which a security begins trading without the dividend included in the price, 
i.e. buyers of the shares will no longer be entitled for the dividend which has been declared 
recently by the company, in case they buy on or after the ex-dividend date.
The first day of the no-delivery period is the ex-date. If there is any corporate benefits such as 
rights, bonus, dividend announced for which book closure/record date is fixed, the buyer of the 
shares on or after the ex-date will not be eligible for the benefits.
What is Pay-in and Pay-out?
What is an Auction?
What is a Book-closure/Record date?
What is a No-delivery period?
What is an Ex-dividend date?
What is an Ex-date?
Introduction to Financial Markets
47
our earlier example to buy 1 share of company ABC you need Rs. 40 pre-split, but after the stock 
split the same number of shares can be bought for Rs.10, making it attractive for more investors 
to buy the share. This leads us to the second reason. Splitting a stock may lead to increase in the 
stock’s liquidity, since more investors are able to afford the share and the total outstanding shares 
of the company have also increased in the market.
A buyback can be seen as a method for company to invest in itself by buying shares from other 
investors in the market. Buybacks reduce the number of shares outstanding in the market. Buy 
back is done by the company with the purpose to improve the liquidity in its shares and enhance 
the shareholders’ wealth. Under the SEBI (Buy Back of Securities) Regulation, 1998, a company 
is permitted to buy back its share from:
a) Existing  shareholders  on  a  proportionate  basis through  the  offer document.
b) Open market through stock exchanges using book building process.
c) Shareholders holding odd lot shares.
The company has to disclose the pre and post-buyback holding of the promoters. To ensure 
completion of the buyback process speedily, the regulations have stipulated time limit for each 
step. For example, in the cases of purchases through stock exchanges, an offer for buy back 
should not remain open for more than 30 days. The verification of shares received in buy back 
has to be completed within 15 days of the closure of the offer. The payments for accepted 
securities has to be made within 7 days of the completion of verification and bought back shares 
have to be extinguished within 7 days of the date of the payment.
CNX Nifty (Nifty), is a scientifically developed, 50 stock index, reflecting accurately the market 
movement of the Indian markets. It comprises of some of the largest and most liquid stocks 
traded on the NSE. It is maintained by India Index Services & Products Ltd. (IISL) which is a 
group company of NSE. Nifty is the barometer of the Indian markets.
A Clearing Corporation is a part of an exchange or a separate entity and performs three 
functions, namely, it clears and settles all transactions, i.e. completes the process of receiving 
and delivering shares/funds to the buyers and sellers in the market, it provides financial 
guarantee for all transactions executed on the exchange and provides risk management 
functions. National Securities Clearing Corporation Limited (NSCCL), a 100% subsidiary of NSE, 
performs the role of a Clearing Corporation for transactions executed on the NSE.
Under rolling settlement all open positions at the end of the day mandatorily result in payment/ 
delivery ‘n’ days later. Currently trades in rolling settlement are settled on T+2 basis where T is 
the trade day. For example, a trade executed on Monday is mandatorily settled by Wednesday 
What is Buyback of Shares?
What is the Nifty index?
What is a Clearing Corporation?
What is Rolling Settlement?
8.2    Index
8.3    Clearing & Settlement and Redressal
(considering two working days from the trade day). The funds and securities pay-in and pay-out 
are carried out on T+2 days.
Pay-in day is the day when the securities sold are delivered to the exchange by the sellers and 
funds for the securities purchased are made available to the exchange by the buyers.
Pay-out day is the day the securities purchased are delivered to the buyers and the funds for the 
securities sold are given to the sellers by the exchange.
At present the pay-in and pay-out happens on the 2nd working day after the trade is executed on 
the stock exchange.
On account of non-delivery of securities by the trading member on the pay-in day, the securities 
are put up for auction by the Exchange. This ensures that the buying trading member receives 
the securities. The Exchange purchases the requisite quantity in auction market and gives them 
to the buying trading member.
Book closure and record date help a company determine exactly the shareholders of a company 
as on a given date. Book closure refers to the closing of the register of the names of investors in 
the records of a company. Companies announce book closure dates from time to time. The 
benefits of dividends, bonus issues, rights issue accrue to investors whose name appears on the 
company’s records as on a given date which is known as the record date and is declared in 
advance by the company so that buyers have enough time to buy the shares, get them registered 
in the books of the company and become entitled for the benefits such as bonus, rights, 
dividends etc. With the depositories now in place, the buyers need not send shares physically to 
the companies for registration. This is taken care by the depository since they have the records of 
investor holdings as on a particular date electronically with them.
Whenever a company announces a book closure or record date, the exchange sets up a no-
delivery period for that security. During this period only trading is permitted in the security. 
However, these trades are settled only after the no-delivery period is over. This is done to ensure 
that investor’s entitlement for the corporate benefit is clearly determined.
The date on or after which a security begins trading without the dividend included in the price, 
i.e. buyers of the shares will no longer be entitled for the dividend which has been declared 
recently by the company, in case they buy on or after the ex-dividend date.
The first day of the no-delivery period is the ex-date. If there is any corporate benefits such as 
rights, bonus, dividend announced for which book closure/record date is fixed, the buyer of the 
shares on or after the ex-date will not be eligible for the benefits.
What is Pay-in and Pay-out?
What is an Auction?
What is a Book-closure/Record date?
What is a No-delivery period?
What is an Ex-dividend date?
What is an Ex-date?
46
Page 5


MISCELLANEOUS
Chapter 8
8.1    Corporate Actions
What are Corporate Actions?
What is meant by ‘Dividend’ declared by companies?
What is meant by Dividend yield?
Corporate actions tend to have a bearing on the price of a security. When a company announces 
a corporate action, it is initiating a process that will bring actual change to its securities either in 
terms of number of shares increasing in the hands on the shareholders or a change to the face 
value of the security or receiving shares of a new company by the shareholders as in the case of 
merger or acquisition etc. By understanding these different types of processes and their effects, 
an investor can have a clearer picture of what a corporate action indicates about a company’s 
financial affairs and how that action will influence the company’s share price and performance.
Corporate actions are typically agreed upon by a company’s Board of Directors and authorized by 
the shareholders. Some examples are dividends, stock splits, rights issues, bonus issues etc.
Returns received by investors in equities come in two forms a) growth in the value (market price) 
of the share and b) dividends. Dividend is distribution of part of a company’s earnings to 
shareholders, usually twice a year in the form of a final dividend and an interim dividend. 
Dividend is therefore a source of income for the shareholder. Normally, the dividend is expressed 
on a ‘per share’ basis, for instance - Rs.3 per share. This makes it easy to see how much of the 
company’s profits are being paid out, and how much are being retained by the company to 
plough back into the business. So a company that has earnings per share in the year of Rs.6 and 
pays out Rs.3 per share as a dividend is passing half of its profits on to shareholders and 
retaining the other half. Directors of a company have discretion as to how much of a dividend to 
declare or whether they should pay any dividend at all.
Dividend yield gives the relationship between the current price of a stock and the dividend paid 
by its’ issuing company during the last 12 months. It is calculated by aggregating past year’s 
dividend and dividing it by the current stock price.
Example:
ABC Co.
Share price: Rs.360
Annual dividend: Rs.10
Dividend yield: 2.77% (10/360)
Historically, a higher dividend yield has been considered to be desirable among investors. A high 
dividend yield is considered to be evidence that a stock is underpriced, whereas a low dividend 
yield is considered evidence that the stock is overpriced. A note of caution here though. There 
have been companies in the past which had a record of high dividend yield, only to go bust in 
later years. Dividend yield therefore can be only one of the factors in determining future 
performance of a company.
A stock split is a corporate action which splits the existing shares of a particular face value into 
smaller denominations so that the number of shares increase, however, the market capitalization 
or the value of shares held by the investors post split remains the same as that before the split. 
For e.g. If a company has issued 1,00,00,000 shares with a face value of Rs.10 and the current 
market price being Rs.100, a 2-for-l stock split would reduce the face value of the shares to 5 and 
increase the number of the company’s outstanding shares to 2,00,00,000, (1,00,00,000*(10/5)). 
Consequently, the share price would also halve to Rs.50 so that the market capitalization or the 
value shares held by an investor remains unchanged. It is the same thing as exchanging a Rs. 100 
note for two Rs.50 notes; the value remains the same.
Let us see the impact of this on the share holder: - Let’s say company ABC is trading at 
Rs.40 and has 100 million shares issued, which gives it a market capitalization of Rs.4000 
million (Rs. 40 x 100 million shares). An investor holds 400 shares of the company valued at 
Rs. 16,000. The company then decides to implement a 4-for-l stock split (i.e. a shareholder 
holding 1 share, will now hold 4 shares). For each share shareholders currently own, they 
receive three additional shares. The investor will therefore hold 1600 shares. So the investor 
gains 3 additional shares for each share held. But this does not impact the value of the shares 
th
held by the investor since post split, the price of the stock is also split by 25% (l/4 ), from Rs.40 
to Rs.10, therefore the investor continues to hold Rs.16,000 worth of shares. Notice that the 
market capitalization stays the same - it has increased the amount of stocks outstanding to 400 
million while simultaneously reducing the stock price by 25% to Rs.10 for a capitalization of Rs. 
4000 million. The true value of the company hasn’t changed.
An easy way to determine the new stock price is to divide the previous stock price by the split 
ratio. In the case of our example, divide Rs. 40 by 4 and we get the new trading price of Rs. 10. If 
a stock were to split 3-for-2, we’d do the same thing: 40/(3/2) = 40/1.5 = Rs. 26.60.
2-for-1 Split Pre-Split Post-Split
No. of shares 100 mill. 200 mill.
Share Price Rs. 40 Rs. 20
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
4-for-1
No. of shares 100 mill. 400 mill.
Share Price Rs. 40 Rs. 10
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
If the value of the stock doesn’t change, what motivates a company to split its stock? Though 
there are no theoretical reasons in financial literature to indicate the need for a stock split, 
generally, there are mainly two important reasons. As the price of a security gets higher and 
higher, some investors may feel the price is too high for them to buy, or small investors may feel 
it is unaffordable. Splitting the stock brings the share price down to a more “attractive” level. In 
What is a Stock Split?
Why do companies announce Stock Split?
Introduction to Financial Markets
45
MISCELLANEOUS
Chapter 8
8.1    Corporate Actions
What are Corporate Actions?
What is meant by ‘Dividend’ declared by companies?
What is meant by Dividend yield?
Corporate actions tend to have a bearing on the price of a security. When a company announces 
a corporate action, it is initiating a process that will bring actual change to its securities either in 
terms of number of shares increasing in the hands on the shareholders or a change to the face 
value of the security or receiving shares of a new company by the shareholders as in the case of 
merger or acquisition etc. By understanding these different types of processes and their effects, 
an investor can have a clearer picture of what a corporate action indicates about a company’s 
financial affairs and how that action will influence the company’s share price and performance.
Corporate actions are typically agreed upon by a company’s Board of Directors and authorized by 
the shareholders. Some examples are dividends, stock splits, rights issues, bonus issues etc.
Returns received by investors in equities come in two forms a) growth in the value (market price) 
of the share and b) dividends. Dividend is distribution of part of a company’s earnings to 
shareholders, usually twice a year in the form of a final dividend and an interim dividend. 
Dividend is therefore a source of income for the shareholder. Normally, the dividend is expressed 
on a ‘per share’ basis, for instance - Rs.3 per share. This makes it easy to see how much of the 
company’s profits are being paid out, and how much are being retained by the company to 
plough back into the business. So a company that has earnings per share in the year of Rs.6 and 
pays out Rs.3 per share as a dividend is passing half of its profits on to shareholders and 
retaining the other half. Directors of a company have discretion as to how much of a dividend to 
declare or whether they should pay any dividend at all.
Dividend yield gives the relationship between the current price of a stock and the dividend paid 
by its’ issuing company during the last 12 months. It is calculated by aggregating past year’s 
dividend and dividing it by the current stock price.
Example:
ABC Co.
Share price: Rs.360
Annual dividend: Rs.10
Dividend yield: 2.77% (10/360)
Historically, a higher dividend yield has been considered to be desirable among investors. A high 
dividend yield is considered to be evidence that a stock is underpriced, whereas a low dividend 
yield is considered evidence that the stock is overpriced. A note of caution here though. There 
have been companies in the past which had a record of high dividend yield, only to go bust in 
later years. Dividend yield therefore can be only one of the factors in determining future 
performance of a company.
A stock split is a corporate action which splits the existing shares of a particular face value into 
smaller denominations so that the number of shares increase, however, the market capitalization 
or the value of shares held by the investors post split remains the same as that before the split. 
For e.g. If a company has issued 1,00,00,000 shares with a face value of Rs.10 and the current 
market price being Rs.100, a 2-for-l stock split would reduce the face value of the shares to 5 and 
increase the number of the company’s outstanding shares to 2,00,00,000, (1,00,00,000*(10/5)). 
Consequently, the share price would also halve to Rs.50 so that the market capitalization or the 
value shares held by an investor remains unchanged. It is the same thing as exchanging a Rs. 100 
note for two Rs.50 notes; the value remains the same.
Let us see the impact of this on the share holder: - Let’s say company ABC is trading at 
Rs.40 and has 100 million shares issued, which gives it a market capitalization of Rs.4000 
million (Rs. 40 x 100 million shares). An investor holds 400 shares of the company valued at 
Rs. 16,000. The company then decides to implement a 4-for-l stock split (i.e. a shareholder 
holding 1 share, will now hold 4 shares). For each share shareholders currently own, they 
receive three additional shares. The investor will therefore hold 1600 shares. So the investor 
gains 3 additional shares for each share held. But this does not impact the value of the shares 
th
held by the investor since post split, the price of the stock is also split by 25% (l/4 ), from Rs.40 
to Rs.10, therefore the investor continues to hold Rs.16,000 worth of shares. Notice that the 
market capitalization stays the same - it has increased the amount of stocks outstanding to 400 
million while simultaneously reducing the stock price by 25% to Rs.10 for a capitalization of Rs. 
4000 million. The true value of the company hasn’t changed.
An easy way to determine the new stock price is to divide the previous stock price by the split 
ratio. In the case of our example, divide Rs. 40 by 4 and we get the new trading price of Rs. 10. If 
a stock were to split 3-for-2, we’d do the same thing: 40/(3/2) = 40/1.5 = Rs. 26.60.
2-for-1 Split Pre-Split Post-Split
No. of shares 100 mill. 200 mill.
Share Price Rs. 40 Rs. 20
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
4-for-1
No. of shares 100 mill. 400 mill.
Share Price Rs. 40 Rs. 10
Market Cap. Rs. 4000 mill. Rs. 4000 mill.
If the value of the stock doesn’t change, what motivates a company to split its stock? Though 
there are no theoretical reasons in financial literature to indicate the need for a stock split, 
generally, there are mainly two important reasons. As the price of a security gets higher and 
higher, some investors may feel the price is too high for them to buy, or small investors may feel 
it is unaffordable. Splitting the stock brings the share price down to a more “attractive” level. In 
What is a Stock Split?
Why do companies announce Stock Split?
44
our earlier example to buy 1 share of company ABC you need Rs. 40 pre-split, but after the stock 
split the same number of shares can be bought for Rs.10, making it attractive for more investors 
to buy the share. This leads us to the second reason. Splitting a stock may lead to increase in the 
stock’s liquidity, since more investors are able to afford the share and the total outstanding shares 
of the company have also increased in the market.
A buyback can be seen as a method for company to invest in itself by buying shares from other 
investors in the market. Buybacks reduce the number of shares outstanding in the market. Buy 
back is done by the company with the purpose to improve the liquidity in its shares and enhance 
the shareholders’ wealth. Under the SEBI (Buy Back of Securities) Regulation, 1998, a company 
is permitted to buy back its share from:
a) Existing  shareholders  on  a  proportionate  basis through  the  offer document.
b) Open market through stock exchanges using book building process.
c) Shareholders holding odd lot shares.
The company has to disclose the pre and post-buyback holding of the promoters. To ensure 
completion of the buyback process speedily, the regulations have stipulated time limit for each 
step. For example, in the cases of purchases through stock exchanges, an offer for buy back 
should not remain open for more than 30 days. The verification of shares received in buy back 
has to be completed within 15 days of the closure of the offer. The payments for accepted 
securities has to be made within 7 days of the completion of verification and bought back shares 
have to be extinguished within 7 days of the date of the payment.
CNX Nifty (Nifty), is a scientifically developed, 50 stock index, reflecting accurately the market 
movement of the Indian markets. It comprises of some of the largest and most liquid stocks 
traded on the NSE. It is maintained by India Index Services & Products Ltd. (IISL) which is a 
group company of NSE. Nifty is the barometer of the Indian markets.
A Clearing Corporation is a part of an exchange or a separate entity and performs three 
functions, namely, it clears and settles all transactions, i.e. completes the process of receiving 
and delivering shares/funds to the buyers and sellers in the market, it provides financial 
guarantee for all transactions executed on the exchange and provides risk management 
functions. National Securities Clearing Corporation Limited (NSCCL), a 100% subsidiary of NSE, 
performs the role of a Clearing Corporation for transactions executed on the NSE.
Under rolling settlement all open positions at the end of the day mandatorily result in payment/ 
delivery ‘n’ days later. Currently trades in rolling settlement are settled on T+2 basis where T is 
the trade day. For example, a trade executed on Monday is mandatorily settled by Wednesday 
What is Buyback of Shares?
What is the Nifty index?
What is a Clearing Corporation?
What is Rolling Settlement?
8.2    Index
8.3    Clearing & Settlement and Redressal
(considering two working days from the trade day). The funds and securities pay-in and pay-out 
are carried out on T+2 days.
Pay-in day is the day when the securities sold are delivered to the exchange by the sellers and 
funds for the securities purchased are made available to the exchange by the buyers.
Pay-out day is the day the securities purchased are delivered to the buyers and the funds for the 
securities sold are given to the sellers by the exchange.
At present the pay-in and pay-out happens on the 2nd working day after the trade is executed on 
the stock exchange.
On account of non-delivery of securities by the trading member on the pay-in day, the securities 
are put up for auction by the Exchange. This ensures that the buying trading member receives 
the securities. The Exchange purchases the requisite quantity in auction market and gives them 
to the buying trading member.
Book closure and record date help a company determine exactly the shareholders of a company 
as on a given date. Book closure refers to the closing of the register of the names of investors in 
the records of a company. Companies announce book closure dates from time to time. The 
benefits of dividends, bonus issues, rights issue accrue to investors whose name appears on the 
company’s records as on a given date which is known as the record date and is declared in 
advance by the company so that buyers have enough time to buy the shares, get them registered 
in the books of the company and become entitled for the benefits such as bonus, rights, 
dividends etc. With the depositories now in place, the buyers need not send shares physically to 
the companies for registration. This is taken care by the depository since they have the records of 
investor holdings as on a particular date electronically with them.
Whenever a company announces a book closure or record date, the exchange sets up a no-
delivery period for that security. During this period only trading is permitted in the security. 
However, these trades are settled only after the no-delivery period is over. This is done to ensure 
that investor’s entitlement for the corporate benefit is clearly determined.
The date on or after which a security begins trading without the dividend included in the price, 
i.e. buyers of the shares will no longer be entitled for the dividend which has been declared 
recently by the company, in case they buy on or after the ex-dividend date.
The first day of the no-delivery period is the ex-date. If there is any corporate benefits such as 
rights, bonus, dividend announced for which book closure/record date is fixed, the buyer of the 
shares on or after the ex-date will not be eligible for the benefits.
What is Pay-in and Pay-out?
What is an Auction?
What is a Book-closure/Record date?
What is a No-delivery period?
What is an Ex-dividend date?
What is an Ex-date?
Introduction to Financial Markets
47
our earlier example to buy 1 share of company ABC you need Rs. 40 pre-split, but after the stock 
split the same number of shares can be bought for Rs.10, making it attractive for more investors 
to buy the share. This leads us to the second reason. Splitting a stock may lead to increase in the 
stock’s liquidity, since more investors are able to afford the share and the total outstanding shares 
of the company have also increased in the market.
A buyback can be seen as a method for company to invest in itself by buying shares from other 
investors in the market. Buybacks reduce the number of shares outstanding in the market. Buy 
back is done by the company with the purpose to improve the liquidity in its shares and enhance 
the shareholders’ wealth. Under the SEBI (Buy Back of Securities) Regulation, 1998, a company 
is permitted to buy back its share from:
a) Existing  shareholders  on  a  proportionate  basis through  the  offer document.
b) Open market through stock exchanges using book building process.
c) Shareholders holding odd lot shares.
The company has to disclose the pre and post-buyback holding of the promoters. To ensure 
completion of the buyback process speedily, the regulations have stipulated time limit for each 
step. For example, in the cases of purchases through stock exchanges, an offer for buy back 
should not remain open for more than 30 days. The verification of shares received in buy back 
has to be completed within 15 days of the closure of the offer. The payments for accepted 
securities has to be made within 7 days of the completion of verification and bought back shares 
have to be extinguished within 7 days of the date of the payment.
CNX Nifty (Nifty), is a scientifically developed, 50 stock index, reflecting accurately the market 
movement of the Indian markets. It comprises of some of the largest and most liquid stocks 
traded on the NSE. It is maintained by India Index Services & Products Ltd. (IISL) which is a 
group company of NSE. Nifty is the barometer of the Indian markets.
A Clearing Corporation is a part of an exchange or a separate entity and performs three 
functions, namely, it clears and settles all transactions, i.e. completes the process of receiving 
and delivering shares/funds to the buyers and sellers in the market, it provides financial 
guarantee for all transactions executed on the exchange and provides risk management 
functions. National Securities Clearing Corporation Limited (NSCCL), a 100% subsidiary of NSE, 
performs the role of a Clearing Corporation for transactions executed on the NSE.
Under rolling settlement all open positions at the end of the day mandatorily result in payment/ 
delivery ‘n’ days later. Currently trades in rolling settlement are settled on T+2 basis where T is 
the trade day. For example, a trade executed on Monday is mandatorily settled by Wednesday 
What is Buyback of Shares?
What is the Nifty index?
What is a Clearing Corporation?
What is Rolling Settlement?
8.2    Index
8.3    Clearing & Settlement and Redressal
(considering two working days from the trade day). The funds and securities pay-in and pay-out 
are carried out on T+2 days.
Pay-in day is the day when the securities sold are delivered to the exchange by the sellers and 
funds for the securities purchased are made available to the exchange by the buyers.
Pay-out day is the day the securities purchased are delivered to the buyers and the funds for the 
securities sold are given to the sellers by the exchange.
At present the pay-in and pay-out happens on the 2nd working day after the trade is executed on 
the stock exchange.
On account of non-delivery of securities by the trading member on the pay-in day, the securities 
are put up for auction by the Exchange. This ensures that the buying trading member receives 
the securities. The Exchange purchases the requisite quantity in auction market and gives them 
to the buying trading member.
Book closure and record date help a company determine exactly the shareholders of a company 
as on a given date. Book closure refers to the closing of the register of the names of investors in 
the records of a company. Companies announce book closure dates from time to time. The 
benefits of dividends, bonus issues, rights issue accrue to investors whose name appears on the 
company’s records as on a given date which is known as the record date and is declared in 
advance by the company so that buyers have enough time to buy the shares, get them registered 
in the books of the company and become entitled for the benefits such as bonus, rights, 
dividends etc. With the depositories now in place, the buyers need not send shares physically to 
the companies for registration. This is taken care by the depository since they have the records of 
investor holdings as on a particular date electronically with them.
Whenever a company announces a book closure or record date, the exchange sets up a no-
delivery period for that security. During this period only trading is permitted in the security. 
However, these trades are settled only after the no-delivery period is over. This is done to ensure 
that investor’s entitlement for the corporate benefit is clearly determined.
The date on or after which a security begins trading without the dividend included in the price, 
i.e. buyers of the shares will no longer be entitled for the dividend which has been declared 
recently by the company, in case they buy on or after the ex-dividend date.
The first day of the no-delivery period is the ex-date. If there is any corporate benefits such as 
rights, bonus, dividend announced for which book closure/record date is fixed, the buyer of the 
shares on or after the ex-date will not be eligible for the benefits.
What is Pay-in and Pay-out?
What is an Auction?
What is a Book-closure/Record date?
What is a No-delivery period?
What is an Ex-dividend date?
What is an Ex-date?
46
What recourses are available to investor/client for redressing his grievances?
What is Arbitration?
What is an Investor Protection Fund?
You can lodge complaint with the Investor Grievances Cell (IGC) of the Exchange against   
brokers   on   certain   trade   disputes   or   non-receipt  of payment/securities. IGC takes up 
complaints in respect of trades executed on the NSE, through the NSE trading member or SEBI 
registered sub-broker of a NSE trading member and trades pertaining to companies traded on 
NSE.
Arbitration is an alternative dispute resolution mechanism provided by a stock exchange for 
resolving disputes between the trading members and their clients in respect of trades done on 
the exchange. If no amicable settlement could be reached through the normal grievance redressal 
mechanism of the stock exchange, then you can make application for reference to Arbitration 
under the Bye-Laws of the concerned stock exchange.
Investor Protection Fund (IPF) is maintained by NSE to make good investor claims, which may 
arise out of non-settlement of obligations by the trading member, who has been declared a 
defaulter, in respect of trades executed on the Exchange. The IPF is utilised to settle claims of 
such investors where the trading member through whom the investor has dealt has been 
declared a defaulter. Payments out of the IPF may include claims arising of non payment/non 
receipt of securities by the investor from the trading member who has been declared a defaulter. 
The maximum amount of claim payable from the IPF to the investor (where the trading member 
through whom the investor has dealt is declared a defaulter) is Rs.10 lakh.
Unit Code: 9 Unit  Title: Concepts & Modes of Analysis
Session-1 : Time Value of Money
Location:
Class Room,
Maths Lab,
FMM Lab
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
Session-2 : Annual Report
·
·
·
Simple Interest
Compound 
Interest
Effective 
Annual Return
·
·
Analysis of 
Interest
High Return 
method of 
Calculation
Interactive lecture:
Formulation of 
Effective Annual 
Return
Activity:
Practice through 
Log Book and 
Scientific 
Calculator
· Comparison 
between 
different 
methods of 
Returns 
(Interest)
· Identify
Income 
Statement
Position 
Statement
Fund 
Sources
CA/ CL
o
o
o
o
·
·
Tools of 
Income and 
Position 
Statement
Distinguish 
b/w Current 
Liabilities 
Current 
Assets
Interactive lecture:
Draw Income and 
Position Statement.
Activity:
Frame the 
Procedure of Loan 
and its 
Requirements.
· Study Annual 
Report of any 
Company
Session-3 : Accounting terms and Technologies
·
·
·
·
Identify 
Secured and 
Unsecured 
Loans
Net/Gross 
Blocks
P/L Statement
Fund 
Applications
·
·
·
Needs and 
Procedure of 
Loans
Measure 
Blocks
Calculation of 
Funds
Interactive lecture:
Financial Needs of 
the Companies
Activity:
Frame the 
Procedure of Loan 
and its 
Requirements.
· Fund 
Requirements 
in the 
companies
Introduction to Financial Markets
49