02 March 2009

There are various pieces of information that companies can put in their annual report or website that helps investors understand a whole lot about the company.

One example is to provide a table that shows changes in the share capital over time. For instance, today a company may have a share capital of RM200 million comprising 2 billion ten sen shares, whereas ten years ago at IPO its share capital was RM40 million at RM1 par value. How did it get to where it is today?

By providing a chronological table of corporate exercises, say, share placement, rights issue, bonus issue, new share issue for acquisitions, capital repayment, share split or share consolidation, investors will have an idea of the how the company was capitalised over time. Prospective investors would see the history of corporate activities at a glance. It also gives an impression of how active the company has been throughout the years.

If say, at some point the company had made a capital repayment, then it becomes clear why it had experienced a share capital reduction. Investors would have understood that point, and would be pleased to know that the company had returned money to shareholders. This would put the company in a good light as opposed to letting potential investors wonder what had caused the share capital erosion.

A shareholder, who used to own the shares of the company may remember the time when it was trading at a certain price, but not having followed the counter for some time, may find that it is now trading at a lower price level. If the table clearly sets out the information that the company had made a bonus issue along the way, which had cause the share price to be adjusted accordingly, then the prospective investor would have quickly understood the reasons for a lower price point, rather than misguidedly thinking that the share price had dropped. Also, the prospective investor would have understood that the company had at that point in time, accumulated a sufficiently large share premium account that allowed the bonus issue to be made.

By putting such information in the annual report or website, companies increase the chances that a potential investor will explore the company further. Of course investors can do their own research but few have time to delve into one company, especially smaller companies, unless they are very interested. Few have time to go through so many corporate announcements or past annual reports of one company, nor do they want to match data, crunch numbers and figure it out.

The idea is to save time for the investor, including analysts and shareholders. And help expedite the investment decision process of potential investors.

Eddie Razak
March 2009

No comments:

Post a Comment