The share has a nominal value and the market price. Nominal shares (nominal value) is a sum of money designated for the shares and reflects the share of the authorized capital of the company attributable to one share. The nominal value of a share is a particle of the authorized capital of the company, and it is carried out in proportion to the payment of dividends (Brockman, Mossman and Olson, 1997). Yet, with this amount of authorized capital amount corresponding to its shares may vary depending on the size of the nominal value of one share. If the value of the stock increases, the number of shares constituting one and the same share capital is reduced, and this process is called consolidation shares. If the face value of the shares decreases, for a given amount of the authorized capital of the number of shares in which it is embodied, increases. This process is called the splitting of shares.
The income that the investor obtains the shares, may act in two ways. One of them is the dividend. This part of the profit of the company to be distributed to shareholders after payment of taxes, interest payments on bonds and loans, contributions to the expansion of production. The dividend is dependent on the size of the company's profit and the total number of shares (Brockman, Mossman and Olson, 1997). The amount of the dividend effect on demand for the shares, their price on the market liquidity. Another type of income on shares is the result of growth in their market value. However, to implement it, the action must be sold.
The main measure of the dignity of the shares is the fair market value of the shares. This is the most probable price at which the stock could be exchanged between knowledgeable, willing buyer and buy a knowledgeable, willing seller to sell; while the buyer and the seller have all the necessary information regarding the shares and operate without any coercion.
The rapid growth of quotations often makes investors wary of strong increase in prices for shares. However, this does not always mean that the paper had become too expensive and will not bring income (Brockman, Mossman and Olson, 1997). To understand whether this is so, it is necessary to compare them with the price of the company's profits or prospects of its business. At the same time, rapid growth in profits does not necessarily mean that the stock is attractive to purchase.
If the market price is below the fair, you should buy shares, if the above - sell if equal - it is necessary to hold shares. When an investor wants to buy shares in a company, it should assess the prospects for the company's growth: on current and expected revenues, market position of its products and services, competitiveness and output capabilities of its products to new markets, training of managers who work in the company, and many other features (Brockman, Mossman and Olson, 1997). Market participants use several indicators to determine whether the stock is undervalued or overvalued. Using them alone is not enough, but all together they can help to identify the really attractive securities. What is more, calculation of capitalization to revenue ratio (Price/Sales) may also be useful. Some stock analysts like companies with large revenues. The company with a capitalization of $500 million and revenue of $1 billion, this ratio will be 0.5. The investor must take into account that most of the revenue does not always guarantee a high profit.
Brockman, P., Mossman, C. and Olson, D. (1997). What's the value of fundamental analysis. Canadian Investment Review, 10(3), p.10.