What is a shareholder analysis? (with photo)

Public companies conduct shareholder analyzes to discover information about shareholders.

Shareholder analysis is a review function that publicly traded companies use to discover information about individuals and groups that own shares in their companies. for example, such an analysis may have lists of the top 10 shareholders ranked by shares held or dollar value, as well as location, legal status, or any other metrics predetermined by the company. Along with this qualitative information, companies can perform a quantitative analysis. This focuses on the financial aspect of shareholder investments. Outside analysts may also conduct shareholder analysis when reviewing a company’s operations and financial information.

While individual investors can buy shares in a company, most large investments come from investment groups or mutual funds. Public companies will often need to report the number of shares held by investors. This can help prove that there is no collusion between investors and publicly traded companies. For example, a mutual fund that continues to buy stock in a company can help drive the stock price up, regardless of the company’s value and financial position.

Publicly traded companies sell shares to raise equity funds for business needs. A shareholder analysis provides information about the number of shares outstanding and how often an investment group acquires shares. While this provides funds for a company to increase business operations, a mutual fund or investment group may also own stock in the supplier from which the company will purchase materials for business expansion. While it may not be illegal, it creates a skewed system of capital flow and the ability of an investment group to influence companies and how they operate in the business environment.

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Return on equity is another focus of shareholder analysis. Equity financing should help a company increase operating profit. However, issuing too many shares will increase the liabilities of the business and dilute the share price of shareholders’ current investments. This allows companies to determine what effects new equity issues will have on the company’s overall group of shareholders. Diluting the value of the current investor’s holdings can result in those investors selling off because the company is unable to generate sufficient returns on current equity.

Shareholder analysis may also involve the executive managers or directors of a publicly traded company. These individuals often have compensation packages that offer them the opportunity to buy stock at specific times as a bonus. Executives and directors who do not exercise call options or sell their shares can signal a warning about the company’s direction or the future value of the shares. While they certainly don’t use inside information for these trades, failing to buy the company’s stock is often interpreted as a bad opinion of the company.

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