Share Market: Basics

Business may be defined as a process that converts outside resources into outside results. The outside resources that a business needs are called factors of production and they are money, (wo) men, machine, material. The outside results are products, services or goods. When a business firm is small and medium in size, its requirements for factors of production is small. For instance, in small business, money is invested by owner, his family or friends. However modern business firms need money in large quantities running into many crores. Such an amount of money can not be provided by one or more individuals or even institutions such as banks. In such cases, business firms go to market with a request for money. This is called Raising of capital. The quantum of money required by the company is split into small units called shares. For instance, if a company needs an investment of say Rs 100 crores, then each share may of value Rs.10. Thus company issues 10 crores shares of Rs. 10 each to the market. Rs. 10 is called the face value of the share. These shares can be bought by individual investors (such as you and me) and institutional investors such as banks. Shares are usually bought in bundles of 100 or its multiples. The market which provides money to companies is called share market. The incentive for investor is dividends. Dividend is the quantum of profit shared by the company with investor. This is given as some money for each share. Companies normally announce dividends every quarter. Here are two recent Indian examples of Raising of capital and issuing of Dividends.

Raising of capital
Tata Motors raised $ 750 million from overseas market.

Issuing of Dividends
Infosys declared an interim dividend of Rs 10 per share in Q2. ( 200%)