📚 Stock Market Glossary
Clear, beginner-friendly explanations, real-world analogies, and visual formulas for key stock market terminology.
Bonus Issue (Free Issue / Stock Dividend)
Corporate & Tech💡 Key Takeaway: A corporate action where new shares are issued to existing shareholders for free by converting reserve capital into share capital.
Splitting 1 Pizza into 2 Analogy: Taking a 10-slice pizza worth $10 and cutting it into 20 slices worth $0.50 each. Total pizza weight is unchanged, but you now hold twice as many slices!
😎 10-Second Show-off Pro Tip for Friends!
😎 Show-off Tip: 'Bonus issues don't inject fresh cash into the company! But it shows strong internal reserves and provides short-term trading momentum via ex-rights price adjustments!'
📖 Beginner-Friendly Explanation
STEP 1
Core Concept & Meaning
Bonus Issue is a corporate policy where a company distributes new shares to shareholders for free, unlike a paid Rights Offering.
STEP 2
Why It Matters & Mechanism
It transfers accumulated reserve funds into capital stock, increasing the total share count held by investors.
STEP 3
Practical Investment Tips & Pitfalls
- No Change in Total Wealth: If share count doubles, price is halved (ex-rights adjustment), leaving net investment value identical.
- Positive Market Signal: Signals strong balance sheet reserves and lowers nominal share price, boosting liquidity and investor interest.
📊 Calculation of free capital increase ratio and ex-rights stock price
Ex-rights stock price = base stock price ÷ (1 + bonus capital increase ratio)
▶ At the time of free capital increase of 1 share per share (100% free capital increase), the stock price starts trading at an exact 50% discount
⚖️ Key Comparison at a Glance
| Category | Bonus Issue | Rights Offering |
|---|---|---|
| Receive stock payment | Free (free payment) | Paid (cash payment by shareholders) |
| Corporate Cash Inflow | None (conversion of internal surplus to capital) | Yes (new financing) |
| Market reaction | Good news for financial soundness and transaction activation | Possibility of stock dilution and financial difficulties |
| Change in capital stock | Capital increase (surplus decrease) | Both capital and total capital increase |
📌 Practical Market & Real-World Example
When a biotech company announces a 1-for-1 bonus issue, circulating shares double, attracting momentum traders.