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Cost of Capital^53

The second part in the figure talks about 'Issued & Subscribed Capital'. Issued Share

Capital is that portion of the authorised capital that has been actually offered for

subscription. Subscribed share capital is that portion of issued share capital, which has

actually been subscribed and allotted. Paid-up share capital is that part of the subscribed

capital for which consideration in cash or otherwise has been received. Therefore,

subscribed share capital can be less than or equal to the issued share capital. Similarly

paid-up share capital can be less than or equal to subscribed share capital. All these

types of share capital also include the bonus shares that have been allotted by the

organisation.

There is another term 'called-up share capital' which you may find in some of the

balance sheets. It refers to that part of the subscribed capital, which shareholders have

been required or demanded to pay but have not paid as yet. This comes in the case

where the company has issued partly paid up shares and some shareholders have not

paid the entire amount to make the shares fully paid up.

Book Value

The book value is calculated by adding reserves to the equity capital of the company,

multiplied by the face value and divided by the equity capital of the company. Book

value tells us how much each share is worth in the books of the company. So if a

company has a face value of Rs.10, equity capital of Rs.10 crores and reserves of

Rs.20 crores, then the book value of each Rs.10 share will be:

Book Value = (.. )
.

Rs cr Rs cr..

Rs cr

(^1020) Rs Rs
10

• ¥ 10 = 30
  The true worth of the share could be very different from the book value so calculated
  even when we are not taking the market price into consideration. Why this is so we will
  see later. Book and market values will usually be equal on the day the shares in a new
  corporation are issued, but after that only coincidence will ever make them equal at any
  given moment.
  Earnings Per Share (EPS)
  EPS can be defined as the company's profit allocated to each outstanding equity share.
  For instance, a company that earned Rs.10 crore last year and has 1 crore shares
  outstanding (with a face value of Rs.10 each) will report a EPS of
  EPS = Rs cr
  cr
  . (^10) Rs.
  1
  = 10
  The profits that are used to calculate EPS are the profits that are left after paying
  interest to debt holders, taxes and dividend on preference shares. EPS is considered to
  be a key figure (and also misleading) in evaluating a share's outlook.