Bonus Share

Posted in Finance, Accounting and Economics Terms, Total Reads: 2570

Definition: Bonus Share

Many a times the company may not pay out its accumulated earnings in the form of dividends to the shareholders, rather it may decide to offer them free shares based on a their existing number of shares. Basically when a company offers bonus shares, it provides each shareholder with a certain proportion of new shares based on their existing number of shares. However the total valuation of the company and the ratio of shares held by various shareholders remain same.

Companies often benefit by doing so especially when their stock prices are very high.

In such cases by increasing the number of shares the company ends up decreasing the price per share.

For example if a company declares a bonus share ratio of 4:1, that means it will offer one share per 4 shares held by any shareholder.

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