What is Bonus Share?

Bonus Shares are additional shares given to the current shareholders without any additional cost,based upon the number of shares that a shareholder owns. When a company issues bonus shares, existing shareholders receive additional shares in proportion to their current holdings. For instance ,if Investor A holds 1000 shares of a company and a company declares 20% ,that is for every 5 share,he gets 1 shares for free. That is total of 200 shares for free and his total holdings will increase to 1200 shares.

What is Bonus Share Adjustment?

"Bonus share adjustment" refers to the changes made to various financial metrics and indicators of a company's stock and financial performance after the issuance of bonus shares. When a company issues bonus shares, the number of outstanding shares increases, which can impact different aspects of the company's financial data and market-related figures. Simply, When a company issues bonus shares,total number of shares outstanding increases ,but the value of the company remains the same. As a result the price per share will typically decrease to reflect the increase in the number of shares outstanding.

How is Bonus Share Adjustment Price Calculated?

Adjusted Price = Market Price/(1 + Bonus Share %) 
or
Adjusted Price = Market Price/(1 + Bonus Share /100)

The market price in the formula is supposed to be the last transaction price(LTP) of scrip just before the book closure date.

Why do companies issue bonus share?

There are several reasons why companies issue bonus shares:

1. Rewarding Shareholders: Issuing bonus shares is often seen as a way for a company to reward its existing shareholders. By providing additional shares without requiring them to invest more money, the company acknowledges the loyalty and support of its shareholders.

2. Enhancing Liquidity: Bonus shares increase the total number of shares outstanding for a company without changing its overall market capitalization. This can lead to greater liquidity in the stock market, as there are more shares available for trading. Increased liquidity can attract more investors and potentially lead to a more active market for the company's stock.

3. Lowering Share Price: When a company issues bonus shares, the total market value of the company remains the same while the number of shares increases. This often leads to a decrease in the share price. A lower share price can make the stock more affordable for a broader range of investors, potentially attracting new shareholders.

4. Improving Perceived Value: Some investors consider receiving bonus shares as a sign of confidence from the company's management in its future prospects. This can improve the perceived value of the company and may lead to positive sentiment among investors.

5. Capitalization of Reserves: Companies might issue bonus shares by capitalizing their reserves or accumulated profits. This means that instead of distributing cash dividends, the company converts its accumulated earnings into additional shares, which can then be distributed among shareholders.

6. Conservation of Cash: Issuing bonus shares allows a company to reward shareholders without utilizing its cash reserves. This can be particularly beneficial during times when a company wants to conserve cash for other purposes such as expansion, research and development, or debt repayment.

Click here for Bonus Share Adjustment Calculator