What are the benefits of KSE share ownership?

1 ANSWERS

1. Guest7337
   

   There are two ways you can benefit from owning shares. The first way is through the growth of the company. Say, for example, ABC Plc earns revenue of Rs.100,000 in one year. After deducting its costs, it has Rs.50,000 left – its profit.
   
   It then reinvests this money in the business, perhaps by investing in better technology, which enables it to cut costs and, therefore, make a bigger profit the following year. If it can continue to improve its profits, demand for its shares will grow and the share price will rise. This type of company, known as a growth stock, is popular with investors who do not need income from their investments.
   
   Many companies also pay a dividend. Say, for example, XYZ Plc earns revenue of Rs.1,000,000. After deducting its costs and reinvesting in the business it has Rs.100,000 left over. It decides to return this money to shareholders by paying a dividend. If the company has 10,000 shareholders, each share will get a dividend of Rs.10 per share. So, if you own 100 shares, your total dividend will be Rs.1,000.
   
   Shares that pay dividends are generally known as ‘Income’ stocks. Companies can return money to shareholders in other ways too such as buying back their shares. This increases the value of those shares still in circulation.
   
   By investing in shares you are also linking your financial wealth to the health of the Pakistan and overseas economies. The proportion of goods and services sold in the Pakistan and abroad typically rises when economies are growing and falls when in recession, thus affecting profits.
   
   The fact economies spend longer in a growth period than in recession has helped shares produce better returns than other assets and, crucially, beat the effects of inflation. If you left Rs.10,000 under your mattress, for example, it would be worth just Rs.9,750 a year later, assuming inflation had increased the cost of goods and services by 2.5% that year. After five years it would have fallen to just Rs.8,810.
   
   Savings accounts do little to protect your money from inflation as your real rate of return is small, averaging 1.8% a year after inflation according to Credit Suisse First Boston’s Equity Gilt Study 2003. Shares, on the other hand, do have the ability to produce better gains. But, as investors it needs to be understood that share ownership is not without its risks

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