Hello Mr. Chintan, I would like to attempt to your question, but before that let me congratulate you for putting up such a thoughtful question. Replied to your questions – • For your first question: this is my guess and I would invite opinion of other knowledgeable people According to my (thoughtful) guess, promoter get salaries during the period which they serve the company boards (probably as Directors) and add value to the organization. And when they think they have added lots of value to it, they sell-off their stake and in return get a huge return (the sell-off amounts are generally very high and includes a big premium component) So, for example, if after going for IPO, the promoters are left with a stake of 50%, they will sell-off this 50% and get their share of returns. And this sell-off amount is generally very high • For your second question: When a company goes for IPO, they issue shares at premium. This premium is an amount paid over and above the face value if the share. Face value here means that the shareholder only has a charge on the assets of the company equivalent to the face value. In case the company gets liquidated, the shareholder will get an amount equal to his holdings' face value And, the premium which that shareholder paid while subscribing to the shares is actually a payment for all the previous profits earned by the company (this is generally called as 'Goodwill') For example – I buy 10 shares of ABC ltd. at Rs. 500 (face value of each share is Rs. 100) Now, I have share in ABC but only upto Rs. 1,000. if the company gets liquidated, it will pay me only Rs. 1,000 and not Rs. 5,000 (10 shares * Rs. 500). Also, the Rs. 400 which I paid extra for every share was for the profits (read as Goodwill) that the company has earned over the years So, ABC's whole share would be distributable among its shareholders. There is not question as to – where will the profit be shown on balance sheet Mr. Chintan, I hope I have been able to explain my thoughts clearly to you. Do let me know if you have any more questions. Also, I would like to invite opinion from other people. - Rishie
[EMAIL PROTECTED] wrote: > Dear All, > > I have some confusion regarding following. > > Generally company EPS is calculated as Net operation profit/No. of > outstanding shares. Few question to understand real EPS. > > A. Generally good companies equities to general public is only 10% , most > of equity is with institutional investors. MF, FII etc. and substantial > part is with promoters. > For example if company has outstanding share 1000 nos ( including general > public and institutions) and made profit of 1000 Rs. Its EPS would be "1 > rs". > > 1. What will promoters do in that case? they will not take any profit?? > 2. How they can take any profit, where it is shown in balance sheet? > > > B. Generally companies want to plan IPO for expansion or start new > business which they are running from so many years. ( for example ABC > company want to expand its existing manufacturing facilities which is > existing from 20 years. ABC company is not listed on any of exchanges. > If say they will float IPO in sept 2008 to raise 10 million Rs by issue of > 100,000 (1 lacs) equity issues, and have total asset before issue of IPO > is 200 million. > If after one year this company made net profit of 1 million Rs, How the > EPS will be calculated > > EPS = 1,000,000 ( Net profit)/ 100,000 (outstanding share) = 10 rs > > In this case what happened to profit generated from its own assets which > was not part of shareholders equity?? Where the profit goes from it?? > Where it is shown on balance sheet. > > Appreciate if some senior members of the groups will clarify above > questions. > > Regards. > Chintan N. Patel > > ======================================================= > Confidentiality Notice > > This communication and the information it contains:- > (a) Is intended for the person(s) or organisation(s) named above and for no other person(s) or organisation(s). > (b) May be confidential, legally privileged and protected in law. Unauthorised use, copying or disclosure of any of it may be unlawful. If you have received this communication in error, please contact us immediately by email at [EMAIL PROTECTED] > ======================================================= -- Posted By Ronald Chisley to Investor Forums at 8/18/2008 02:10:00 PM --~--~---------~--~----~------------~-------~--~----~ Logon at – http://investorline.co.in/blogs/news Learning Center- http://investorline.co.in/blogs/learning Mutual funds - http://investorline.co.in/blogs/mutualfunds Life Insurance - http://investorline.co.in/blogs/lifeinsurance Investor Journal - http://investorline.co.in/blogs/investor Latest News - http://investorline.co.in/blogger/?q=aggregator/categories/ Create your own Forum & Blog at - http://investorline.co.in/blogger To post to this group, send email to [email protected] Visit this group at-http://groups.google.com/group/investor-forums?hl=en -~----------~----~----~----~------~----~------~--~---
