If you want to maintain a really fluid relationship with the equity markets, you will have no choice but to know what a capital increase consists of. Is about an economic resource that companies resort to quite frequently that are listed in the main stock market indices of our country. And that entails certain repercussions on the affected values. You will even have the power to go or not to them depending on your interests within the stock market sector.
More in depth, a capital increase is a financial operation that consists of increasing a company's own resources with the aim of being able to finance new investments or improve its financial situation. These kinds of economic operations are not always the sameOf course not, and they can affect you in many ways, to the point that they can be completely free, which is where they are most favorable to your personal interests. As surely you can check if you follow this information.
Classes of capital increase
There are many kinds of capital increases that you can go to if you have open positions in some of the stock securities subject to these movements in their capital. And they can surely appear on more than one occasion throughout your life as a small and medium investor. Some will be more beneficial than others, but in any case it will be you who has to make the decision.
Extension released: consists when the nominal value of the existing shares is increased: It can be charged to the company's undistributed profits, and in which case, you will not have to contribute money in the operation since you will receive the new shares released, that is, totally free.
It is the most favorable scenario for your interests, although it is not always the case in all cases. It can help you grow your positions in the value, with more actions. And as a consequence of this situation, you will have greater possibilities to make your operations profitable when you sell the shares, both the old and the new.
At the by: it is when they are carried out on the nominal value of the new shares. In this scenario, if you want to go to the extension, you will have no choice but to pay an additional amount for the new shares. This movement is called the issue premium, and it is not always very satisfactory for your interests. And in any case, it will mean another outlay that you will have to face in order to make it profitable in the coming months, or even years.
An effect is produced that can mislead many investors. It is none other than the increase in the number of outstanding shares, which causes that decrease the value accounting of each action. This in practice has a direct impact on the share price. Not in vain, with more titles than before, the value of each share is worth less. Dilution occurs in stocks, something you've probably heard in equity slang on more than one occasion.
How is your situation?
Each time the capital increase occurs in listed companies, shareholders will have a preferential right to subscribe for the new shares with respect to investors who do not have positions in equities. Do not forget it, since it is one of the characteristics of these movements, and that can help you increase the positions in the affected security. To the point that your investment is more powerful than at the beginning.
However, the rights to subscribe for the new shares will be optional. You do not have to go to the capital increase, and only if you are interested in their conditions, should you accept the operation. It is very convenient that you pull the calculator to check the real effect of its acceptance on your personal accounts, and even if it will mean more benefits for the future.
You can take advantage of this financial operation to acquire as many new shares as you are allowed and at the price previously issued by the company or not to exercise your right and sell it on the market. In the first case, you will see your position as a shareholder in the company strengthened, either free of charge or by paying a price. If, on the other hand, you do not want to go to the extension, you will have no choice but to sell the rights in the markets. You can even get a small amount for the sale transaction performed.
Effects of the increase on the value
When financial movements are made, it is because the company tries to attract more monetary resources to shore up its line of business. Usually as a result of some other problem in your business accounts. That is why, each time there is a capital increase it is very badly received by the markets. Their shares tend to decline, even virulently, to generate significant losses in the value of their shares.
They identify the extensions with financing problems in the company, and that through them they can get the necessary resources to get ahead. They are not only produced in small capitalization companies, but the leaders of the selective Spanish index also carry it out. It is enough to see how during the last years, Companies such as Banco Santander or Telefónica have launched a capital increase, although of diverse nature. And in both cases, losing value, even momentarily.
Only if investors believe that the company will come out very strengthened and benefited from the expansion, could the share price rise. Although you may think otherwise, it is not a move really desired by small investors. And only if you are out of value can you be profitable. How? Well, very simple, entering their positions through rights, instead of buying shares directly from the stock exchanges.
During all the years you will have many operations of these characteristics, both for large values and those from minor indices. It will be you who must make a decision to go to them, both as shareholders that you are, or to take positions in the value. The offer that is presented is very important, and of diverse nature. Because not all extensions will be the same, since each one of them is governed by very well-defined peculiarities.
Keys to know if you go to the enlargement
Every time any of these operations occurs in the equity markets, you should study the offer they offer you. And determine if you are in a position to accept the investment proposal. To help you develop an accurate and adequate strategy, we offer you a series of tips that may be very useful for your interests as a small investor. And as a consequence of them, you opt for the most appropriate decision.
- Much of capital increases are not business opportunities as you might think. Companies try to raise economic resources to boost their business, and they turn to shareholders. Don't subscribe them just because, and if necessary seek the advice of an expert in the financial markets who will try to help you make decisions.
- The best way to defend your interests is when extensions are free, and you do not have to face any financial outlay. In these if you may be interested in subscribing the extension. Another very different issue is how the price of shares will evolve in the equity markets.
- You will have a fairly long period to make the final decision. These days will serve you to study, analyze and dictate the offer. You do not have to give your opinion the first day, but you have a reflection period that can reach almost 30 days. It is not wise for you to make the decision prematurely, much less without reflection.
- If your intention is to undo the positions in a security that announces the capital increase, it will not be a good decision for you to change your mind due to this noteworthy fact. You must keep the same scenario, and simply refuse the proposal, unless the subscription conditions are especially favorable for your needs.
- The profitability that you can get from these operations will not be, in the best of cases, very spectacular, and they will only provide you with the necessary resources to indulge yourself during the year, nothing more. Although it may take a few months to formalize this movement.
- Before going or not to the capital increase, it will be necessary that keep in mind from which company this investment proposal comes. It will be one more clue that you have to evaluate your performance in the coming days. As we have been repeating, not all are the same, far from it.
Final conclusion
Although it is a movement that creates expectation among small investors, it is preferable that you look for other more transparent options to enter the equity markets. Or at least to reinforce your positions in a specific security. Furthermore, in most cases, capital increases thrive under very difficult conditions, and you don't even understand. Needing the advice of other people, who are aware of these corporate movements.
You will also have a lot to see if the extension is generated in a security with an upward or downward trend, because it will probably be the path it will take when the subscription period ends. And you can make it profitable, or not, depending on each case. Not surprisingly, each one of them will be different, and you don't have to be very resounding in the diagnosis about the need you have or not to go.