Lauren Hua

What is a demerger?

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A demerger is a corporate action where business operations are separated, and a separate entity is formed and listed on the stock exchange. In this article we discuss the definitions of a demerger, why companies participate in these corporate actions, and the implications for shareholders. Definition A demerger occurs when a large organisation decides to restructure its business and splits into different companies and list them as separate entities on the stock exchange. The parent company then issues shares of …

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A simple guide to tax and shares

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As we have just passed the end of financial year below, it is important to know what is taxable when investing in shares and what can be deducted. Please be advised that you should treat this information as a general guide only and we recommend that you speak to a tax specialist. Dividends Dividends are considered income so they are taxed as such under the Australian tax system. However, as companies who issue these dividends may have already paid tax, …

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What is the difference between return on equity and return on capital employed?

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Investors can use various methods to compare different companies within the same sector. One tool is to measure the return in equity and also return of capital employed. In this article we discuss what the difference is between the two. Return on Equity The return on equity (ROE) ratio is a tool that investors can use to compare companies from the same industry to identify which is the best out of the group. It essentially measures how effective management uses …

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The pros and cons of debt financing

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In our last article, we discussed stock dilution which can be the result of a company raising more equity.  However, companies can also raise money through debt financing. In this article we discuss the pros and cons of debt financing. Pros of debt financing 1.Ownership. When companies choose debt to finance new projects, they are keeping the company ownership as is. However, when they raise equity instead, investors who buy an equity position of a company also obtain a part …

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What is stock dilution?

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Companies may need to raise capital and instead of borrowing, they can issue a share purchase plan or convertible securities. The benefit of these methods is that they do not take on more debt. However, the downside is that this can cause the stock to dilute. In this article we explain what a stock dilution is and the consequences when this occurs. Why do companies dilute their stock? Companies may issue share purchase plans to raise capital to fund a …

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