BONUS AND BUYBACK OF SHARES

GROUP MEMBERS SNEHA RAMESH(M1249) TRUPTI KOTHARI(M1253)

WHAT ARE BONUS SHARES

When the additional shares are allotted to the existing shareholders without receiving any additional payment from them, it is known as issue of bonus shares.

GUIDELINES TO BE FOLLOWED
Securities and Exchange Board of India (SEBI) guidelines are to be followed for issue of bonus shares:No company shall, issue the shares by the way of bonus unless the benefits are extended to the shareholders. 1. The bonus issue is made out of free reserves built out of the profits or share premium collected in cash only. 2. The residual reserves after the proposed capitalization shall be at least 40% of the increased paid up Disclosure of restated EPS.

REASONS FOR ISSUING BONUS SHARES

1.Brings the market price per share within a more reasonable range. 2.Promotes more active trading. 3. Nominal rate of dividend tends to decline. 4. Share capital base increases 5. Shareholders regard a bonus issue as a strong indication that the prospects of the company

6. It improves the prospects of raising additional funds.

DIFFERENCE BETWEEN BONUS ISSUE AND STOCK SPLIT

Bonus Issue Stock Split

1. The par value of share is unchanged.

1. The par value of share is reduced.

2. A part of the reserves is capitalized.

2. There is no capitalization of reserves.

ADVANTAGES OF ISSUE OF BONUS SHARES TO THE COMPANY

1. Conservation of Cash
2. Keeps the EPS at a reasonable level 3. Increases the marketability of company's shares 4. Enhances prestige of the company 5. It helps in financing its projects 6. Retention of managerial control

ADVANTAGES TO THE SHAREHOLDERS

1. Tax benefits 2. Indication of higher future profits 3. Increase in future dividend

4. High psychological value

DISADVANTAGES TO THE SHAREHOLDERS

Some shareholders may prefer cash dividend to stock dividend, such shareholders may feel disappointed (no doubt they can very well sell their bonus shares and get their money).

DISADVANTAGES FOR THE COMPANY

1. Increase in the capitalization of the company. 2. Expects the existing rate of dividend per share to continue. 3. Prevents the new investors from becoming the shareholders

BUYBACK OF SHARES
When a corporation buys its own stock on the open stock market, it is considered a

"stock buyback" and the shares purchased

are re-titled "treasury stock.

REASONS FOR BUYBACK

1. Unused cash 2. Market perception 3. Exit option

4. Increase in promoters stake

5. Exit monitoring of accounts and legal controls 6. Show rosier financial picture

ADVANTAGES O F BUYBACK
1. 2. 3. Benefits of Stock Buybacks Increased Shareholder Value Higher Stock Prices

4.
5. 6. 7.

Increased Float
Excess Cash Income Taxes Price Support

DISADVANTAGES
1. Manipulation of Earnings

2. Buyback Percentage percentage

3. Execution of Buyback

4. High Stock Prices