share

Evidence of ownership that represents an equal proportion of a firm's capital. It entitles its holder (the shareholder) to an equal claim on the firm's profits and an equal obligation for the firm's debts and losses. Two major types of shares are (1) ordinary shares (common stock), which entitle the shareholder to share in the earnings of the firm as and when they occur, and to vote at the firm's annual general meetings and other official meetings, and (2) preference shares (preference stock) which entitle the shareholder to a fixed periodic income (interest) but generally do not give him or her voting rights. See also stock.

In contemplating business mergers and acquisitions, many managers tend to focus on whether the transaction is immediately dilutive or anti-dilutive to earnings per share (or, at financial institutions, to per-share book value). An emphasis of this sort carries great dangers. Going back to our college-education example, imagine that a 25-year-old first-year MBA student is considering merging his future economic interests with those of a 25-year-old day laborer. The MBA student, a non-earner, would find that a "share-for-share" merger of his equity interest in himself with that of the day laborer would enhance his near-term earnings (in a big way!). But what could be sillier for the student than a deal of this kind? In corporate transactions, it's equally silly for the would-be purchaser to focus on current earnings when the prospective acquiree has either different prospects, different amounts of non-operating assets, or a different capital structure.

• How Management Can Make High Earnings
• When Should Companies Buy Back Shares
• CEOs Maximizing Share Price in the Present
• One Way of Increasing Market Share
• The Best Assurance of Continued Growth
• The Only Time a Company Should Repurchase its Shares
• What Counts Most in a Merger