Table of Contents

Philosophy of Corporate Actions

The philosophy of corporate actions is to ensure that they are carried out in a transparent and fair manner, taking into consideration the interest of all stakeholders, particularly the minority shareholders. Companies should communicate their corporate actions clearly and effectively to their stakeholders, ensuring that they understand the rationale behind such actions. The decision to undertake a corporate action should be guided by the company’s long-term strategy and goals, rather than short-term gains. The process of corporate actions should be efficient, cost-effective, and comply with all legal and regulatory requirements. By adhering to these principles, companies can build trust and confidence among their stakeholders, and enhance their reputation and value in the long run.

  1. Provisions of the Companies Act, 2013,
  2. Relevant regulations of SEBI, and
  3. Terms of the listing agreement entered into with the stock exchange
Coporate action name Description Examples
Dividend Dividend is the portion of profits that a company distributes to its shareholders. The amount of dividends paid out to shareholders is determined by several factors, such as the company's available cash, management's decision, shareholder expectations, and reinvestment opportunities. A company may declare interim dividends during the financial year and a final dividend at the end of the year. It is mandatory for companies to pay out declared dividends within 30 days. When companies declare dividends, the actual amount of cash paid to shareholders may differ based on the face value of their shares. For instance, if two companies, A and B, declare a 50% dividend, an investor in A with a face value of Rs. 2 will receive Re. 1 per share as a dividend, whereas an investor in B with a face value of Rs. 10 will receive Rs. 5 per share as a dividend. In order to avoid any confusion for investors, companies are required to declare dividends in terms of the amount paid per share, rather than just as a percentage of the face value of the shares. Example: If a company declares a dividend of Rs. 5 per share, an investor who owns 100 shares will receive a total dividend of Rs. 500.
Right Issue A rights issue is a way for a company to raise capital by offering new shares to its existing shareholders at a discounted price. The company sets a record date, after which shareholders are eligible to participate in the offering. Shareholders can exercise their right to purchase additional shares at a discounted rate before the expiration date. The purpose of a rights issue can be to finance expansions, repay debts, make acquisitions, or increase the company's stock price. However, issuing additional shares can dilute the value of existing shares, as the total number of shares outstanding increases. Example: If a company offers a 1-for-2 rights issue at Rs.70 per share, a shareholder who owns 10 shares can buy 5 additional shares at Rs.70 per share.
Bonus Issue A bonus issue is a corporate action in which a company issues additional shares to existing shareholders at no cost, in proportion to their current holdings. The purpose of a bonus issue is to reward shareholders and increase the liquidity of the stock. Bonus issues do not involve any cash outflow from the company, but can dilute the value of existing shares as the number of shares outstanding increases. To maintain the post-bonus market value of a holding equivalent to its pre-bonus value, the fair price of each share is likely to decrease proportionally. However, the actual market price of the share after the bonus will depend on various market factors. Example: If a company issues a 1:1 bonus issue, a shareholder who owns 100 shares will receive an additional 100 shares for free.
Stock Split A stock split is a corporate action in which a company divides its existing shares into multiple shares at a lower price. This is typically done to make the company’s shares more affordable and to increase the liquidity of the stock. Stock splits are also used to increase a company’s stock price, as it increases the number of shares outstanding. For example, SBI initiated a stock split of its equity shares from a face value of Rs.10 to Re.1. A shareholder holding 1 share of a face value of Rs.10 will now hold 10 shares each with a face value of Re.1.
Share Consolidation In a share consolidation, the company changes the structure of its share capital by increasing the par value of its shares in a defined ratio and correspondingly reducing the number of shares outstanding to maintain the paid up/subscribed capital. A stock consolidation of 5:1 means consolidation of 5 existing share into 1 share. Accordingly, face value of shares will go up 5 times of the original face value and no. of outstanding shares will become one fifth the original number.
Merger and Acquisition A merger and acquisition (M&A) is a corporate action in which two companies join together, either through an acquisition where one company buys another or a merger where two companies combine. This is typically done to expand the company’s operations and to increase its market share. For example, in 2020, Fiat Chrysler and PSA Group merged to create Stellantis, the world's fourth largest automaker.
Demerger/Spin-off A demerger or spin-off is a corporate action in which a company distributes a portion of its assets to create a new company. This is typically done to focus the company’s operations or to unlock value from its assets. For example, in April 2018, Adani Enterprise spun-off its renewable energy business to a new company Adani Green Energy Limited.
Scheme of arrangement A scheme of arrangement is a corporate action in which a company restructures its operations and debts. This is typically done to make the company more efficient or to reduce its debts. For example, in 2021, Future Retail completed a scheme of arrangement with Reliance Industries, which allowed Reliance to acquire Future Retail's retail, wholesale, logistics, and warehousing businesses.
Loan Restructuring Loan restructuring is a corporate action in which a company renegotiates the terms of its debt. This is typically done to make the company’s debt more manageable or to reduce its interest payments. For example, in 2020, the Reserve Bank of India allowed banks to restructure the debt of companies affected by the COVID-19 pandemic.
Delisting and relisting of Shares Refers to the process of a company removing its shares from a public stock exchange and then listing them again at a later date. Delisting is often done when a company's shares are underperforming, as it can help to reduce public scrutiny and free up capital. Relisting is done when a company believes that its shares are undervalued and that they may perform better if they are listed on the exchange again. Apple, Inc. (AAPL) delisted its shares from the NASDAQ stock exchange in 1982 and relisted on the New York Stock Exchange (NYSE) in 1984.
Share Swap A process wherein two companies agree to exchange their shares with each other. This could be done for various reasons such as to gain access to each other’s markets, to facilitate a merger or acquisition, or to increase the ownership stake of one company in the other. Share swaps can also be used to restructure the ownership of a company by swapping out minority shareholders for a majority stakeholder. In 2017, T-Mobile US, Inc. and Sprint Corporation agreed to a share swap deal as part of their merger agreement.


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1. According to Warren Buffett, why does he have no use for projections or forecasts?

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2. Which ratio compares a company's earnings with its interest expense to determine its ability to meet interest obligations?

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3. What does the insiders' sales and purchase of stocks indicate?

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4. Which of the following items are found in an income statement?

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5. Which ratio calculates the returns generated by a company for every rupee of capital employed, including both equity and debt?

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6. Which ratio helps determine the profitability of a company based on its operations and direct costs?

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7. Which ratio measures how many times a company's assets are utilized to generate revenues?

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8. Which ratio determines the number of times a company's inventory is converted into sales?

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9. Why is it important to study a company's history of equity expansion?

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10. What does peer comparison in financial analysis help to understand?

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11. Which of the following measures the ability of the company to satisfy its short-term obligations as and when they come due?

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12. Which ratio measures a company's liquidity by comparing its current assets to its current liabilities?

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13. Why is ratio analysis useful in financial statement analysis?

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14. Which framework decomposes the return on equity (ROE) into multiple components to understand the company's drivers?

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15. What is one of the challenges in using historical data for financial forecasting?

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16. Which section in the Cash Flow statement will provide the information about the amount of funds that a company borrowed during the preceding year?

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17. Which ratio indicates how much of the business generated by a company actually comes to shareholders?

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18. Which ratio assesses the extent of leverage used by a business and its ability to meet obligations arising from debt?

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19. What does a qualified report from auditors indicate?

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20. What does Return on Equity (ROE) measure in terms of capital allocation and return generation?

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21. Which ratio indicates how efficiently a company converts its sales into cash and measures the portion of revenues in the form of credit?

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22. Which ratio is a more stringent measure of liquidity as it excludes inventories from current assets?

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