We examine in this chapter the valuation of ordinary shares. Ordinary shares, or equities as they are also known, are by far the most important type of security issued by UK and Irish companies. On 31 March 1992, there were 797 loan capital securities and 1,068 preference shares of UK companies quoted on the Stock Exchange (including the Unlisted Securities Market) compared to 2,313 ordinary shares,1 and yet the ordinary shares represented 95% of the market value of all these UK corporate quoted securities. The ordinary shares were worth £543b., over four times more than the market value of UK gilt-edged stock of £133b. Despite this, ordinary shares represented 26% of the total market value of the UK Stock Exchange on that date. This percentage figure is misleading, since 58% of the Stock Exchange’s total market value consisted of the securities of overseas companies, that is, shares which are quoted primarily on overseas stock exchanges. If these shares are excluded, UK and Irish company ordinary shares represented 72% of the market value of the Stock Exchange with gilts contributing a further 18%. The bulk of the remainder is eurobonds, referred to in Chapter 4.
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