31 January 2011

Price Adjustment:

(Thanks and all credit goes to stockpedia)

You might have seen that day after record date, there was a drastic price fall of a particular company. This price is not fallen due to performance or any news of the company. Actually this price is adjusted according to the declared dividend(stock or cash)or right share rate. So, this type of price reduction after record date is called as "Adjustment of Price" for a share. But as we know, there are 3 types of record date. One is for AGM/dividend approval, second is for entitlement of Right Share and third one is for EGM. Normally price is adjusted in case of first two cases. Moreover, the adjustment rate will be different in case of cash/stock/right share.

Adjustment for Stock Dividend:
This adjustement occurs in case of stock dividend. Processes are as below:
1)Find the closing price: We know that no transiction occures on the record date. So, first of all, identify the closing price on day before record date. As for example, record date of Xcompany was 10th April and the last price on 9th April was 1200tk. So, you have consider the 1200tk in this case.
2)Calculate price of 100 shares: As stock dividend/right share is declared as percentage(%), it will be easier if you consider the adjustement for each 100 shares. To calculate the price of 100 shares, multiply the closing price with 100(number of shares). So, from previous example, price of 100 shares is 1200(tk)X 100(shares)= 1,20,000 tk on day-before-record date.
3)Total shares with bonus: Find out total number of shares (Main+Bonus) you will get after record date for each 100 shares. Suppose, The company declared 20% stock dividend. So your number of shares will be 100+20=120 nos if you have 100 shares on record date.
4)Calculate adjustment: Now the adjustment can be done by following formula:
Adjusted Price = Calculated Price of 100 Shares / Total Shares with Bonus
Here, (/)sign means, divided by.

From the example, we have calculated price of 100 shares is 1,20,000tk and number of shares after record date 120nos.
So, adjusted price after record date is, 1,20,000/120 = 1000tk.
You can also get our calculator from [MISC] section under drop-down menu.

Adjustement for Right Share:
1)Find the closing price: Same as 'Stock Dividend'. Please see the Adjustment for Stock Dividend.
2)Calculate price of 100 shares: Same as 'Stock Dividend'.
3)Total shares with right shares: In case of right share, if it is declared as 1R:2(1 Right share of each 2 shares), then the number will be 100+50Right=150nos. If it is declared as percentage(%), calculation will be as like as stock dividend.
4)Deduct the submitted price: To get right share, you have to deposit at least face value for the total amount of right shares you will recieved. Moreover, if company declared premium, you have to add that amount(premium)with face value for each share. From the previous point, we have calculated that you will get 50 right shares for 1R:2, Facevalue of each share is 100tk and suppose premium is 50tk. So you have to deposit 100(facevalue)+50(premium)=150tk for each right share. Total money you have to deposit for that 50 right share is 50X150tk=7500tk. Deduct this amount from the price of 100 shares (1,20,000tk - 7,500tk=1,12,500tk)
5)Calculate adjustment:
Adjusted Price = Deducted Price / Total Shares with Right Shares
Here, (/)sign means, divided by.

From the example, adjusted price is 1,12,500/150 = 750tk.
You can also get our calculator from [MISC] section under drop-down menu.

Adjustment for Cash Dividend:
1)Calulate cash amount: In case of cash dividend, you have identify how much cash you are going to get after record date. If face value of a share is 200 taka, then the price of 100 no. of shares is 100(shares)X 200(taka)= 20,000 taka. In case of 20% cash dividend, you will get 20,000tkX20%= 4,000tk for each 100 shares.
2)Calculate market price of 100 shares: If the price of each share was 1200tk on day-before-record date, then the current market price is 1200(tk)X 100(shares) = 1,20,000tk for each 100 shares.
3)Calculate adjustment:
Adjusted Price = (Current price of 100 shares - Calulated cash amount for 100 shares) / 100

From the example, current market price of 100 shares is 1,20,000tk and calculated cash amount to be recieved from 100 shares is 4,000tk.
So the adjusted price = (1,20,000tk - 4,000tk)/ 100 = 1160tk
You can also get our calculator from [MISC] section under drop-down menu.

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