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Friend selling a share in a private company.. Capital purchases affect share value?

  • 15-04-2013 12:12pm
    #1
    [Deleted User]
    Posts: 17,378 ✭✭✭✭


    My friend is a shareholder in a company he set up in VN a few years ago with a few others.. Basically, last year he reckons a share was worth X but then they made a large capital investment instead of paying a dividend.

    Since he is selling a % of his holdings half way through the business year and there won't be a valuation, he is wondering if the share price is X + % of capital investment. And also, his accrued dividend should just be paid out at the end of the business year?

    I'm actually a bit embarrassed that I don't know how to work this out for definite.


Comments

  • #2
    alanceltic
    Registered Users, Registered Users 2 Posts: 790 ✭✭✭alanceltic


    Depends where the funds for the investment came from. If it came from the existing shareholders (ie. new capital) then his stake in the company should be worth more. If the investment came from company resources (cash/loan etc) then in theory the Nett worth of the company is unchanged unless of course the investment is worth considerably more than what was paid for.

    PS no such thing as a stupid question, only stupid answers!


  • #3
    [Deleted User]
    Posts: 17,378 ✭✭✭✭ [Deleted User]


    He just said that they skipped dividends and spent about $70k on long term assets.. What do ya think?

    Thanks.


  • #4
    caoty
    Registered Users, Registered Users 2 Posts: 174 ✭✭caoty


    In theory and assuming that other factors remain the same, the share value is not changed.
    Deleted User wrote: »
    He just said that they skipped dividends and spent about $70k on long term assets.. What do ya think?

    Thanks.


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