What is the point of a scrip issue?
A “scrip” issue (also known as a “capitalisation” or “bonus” issue) is a process by which a company converts its cash reserves into new shares and issues them to existing shareholders on a pro rata basis, at no cost to the shareholder. For example, imagine a shareholder who has 100 shares in a company whose share price is 15, value 1500. If the company announces a 2 for 1 scrip issue, the shareholder will now hold 300 shares and therefore the share price will be reduced to 5 to reflect this (new value = 300 x 5 = still 1500). It is also widely accepted that this action can make a share more marketable to potential new investors, simply because the price becomes “cheaper”. What is market capitalisation? And when I see “billions wiped off share prices” what has happened? Market capitalisation is generally accepted as being the value of a quoted company and is calculated by multiplying the number of shares in issue by the current share price. For example, at the moment British Airways has
