LEGAL PERSPECTIVE Stocks Value by Dr AbdelGadir Warsama, Legal Counsel

Dr AbdelGadir Warsama, Legal Counsel

Property can be divided into certain categories including, “tangible real property” as in land and anything attached to it, or “tangible personal property” as in any moveable items that can be bought and owned, or “intangible personal property” that cannot be seen but exists by virtue of written documentation as in insurance policies, bank accounts, stocks, and bonds. Due to some confusion, it would be better to elaborate in “intangible personal property” particularly stocks, with respect to the noticeable big volume of investment activity. Moreover, there are different types of stocks and investment or trading therein is well regulated and established.

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Investors purchase a firm common stock, in the hope that that it will increase in value, provides dividends income or both. But how is the value of common stocks determined? Stocks value are expressed in three different ways, as par value, market value and book value. The face value of a share of stock at the time it is originally issued is the “par” value. To receive their corporate license all companies must declare par value for their stocks. Each company must preserve the par value money in its retained earnings, and it cannot be distributed as dividends. Whereas stocks real value is its “market” value. In other words, the current price of a share as displayed in the stock market. The market value reflects the buyer’s willingness to invest in a company at a certain time. The “book” value of a common stock represents the owner equity divided by the number of shares. Book value is used as a comparison indicator because the market value for successful companies is usually greater than its book value. Thus, when market falls to near book value, some investors buy stocks on the understanding that it is underpriced and will increase in the near future.

Investors are advised that, common stocks are among the riskiest of all securities. Including, uncertainties about stocks market itself, which can quickly change value. Furthermore, when companies lack profits, they cannot pay dividends. Shareholder income, therefore, and perhaps share price drops. At the same time, on the other hand, common stocks offer high growth potential. Naturally, the prospects for growth in various industries change from time to time and institutional investors are aware. Therefore, particularly small investors, are advised to look for well-established financially sound firms.

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