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Assuming we are a shareholder of a company that has been issuing rights,bonus issue and dividend,do we know how to compute our overall returns versus our initial investment.
Append below is such a scenario to understand our current total returns versus our initial investment. In turn,we compare this investment to next alternative investment to see whether we have invested wisely.
Scenario:
Assuming that a shareholder had acquired 1,000 shares at par at the inception of the Company in 1971 and subscribed for the rights issue and received all bonus issues,his/her returns and market value of such investment as at 31 December 2005 would be:-
Year | Particulars | New Shares issued | Cumulative number of shares | Our Cost of Investment |
| 1971 | Initial subscription | 1,000 | $1,000 | |
| 1973 | Rights Issue:1 for 2 | 500 | 1,500 | $500 |
| 1978 | Bonus issue:1 for 2 | 750 | 2.250 | |
| 1981 | Bonus issue:1 for 2 | 1,125 | 3,375 | |
| 1988 | Bonus issue:1 for 3 | 1,125 | 4,500 | |
| 1990 | Bonus issue:1 for 2 | 2,250 | 6,750 | |
| 1992 | Bonus issue:1 for 3 | 2,250 | 9,000 | |
| 1994 | Bonus issue:1 for 4 | 2,250 | 11,250 | |
| 1997 | Bonus issue:1 for 2 | 5,625 | 16,875 |
| Current Investment | Initial Investment | |
| Total number of shares a shareholder held | 16,875 | 1,500 |
| Closing market price as at 31/12/2005 | $5.35 | |
| Market Value of shares held | $180,563 | $1,500 |
| Cumulative gross dividend received (1971-2005) | $154,425 |
# Assumption of issue of exact lots for illustrative purposes only
In view of the foregoing,we can conclude that:
A $1,000 investment made in 1971,and a further $500 investment in 1973,would have generated a total capital value of $180,563 and a total gross dividend of $154,425 as at 31 December 2005.
Had we placed the equivalent investment of RM1,000 and $500 in 1971 and 1973 respectively in a fixed deposit at an annual interest rate of 5%,compounded annually,the amount in the bank would be $7,755 as at end of 2005
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FCCA,CA(MIA)with more than 26 years of post-qualifying working experiences. Previous working stints with one of the big accounting four,Regional GFC & Group Treasurer in a group of Malaysian and Group CFO in Singapore public listed concern.Also author to another very popular free educational accounting cum finance blog:http://basiccollegeaccounting.com under the branding of College Accounting Coach.
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