Shareholder analysis is a review of individuals and groups that own shares in a company, including financial and qualitative information. It helps companies understand their investors and potential conflicts of interest, as well as the impact of new stock issues on current shareholders.
Shareholder analysis is a review function that public companies perform to discover information about individuals and groups that own shares in their company. For example, such an analysis might have lists of the top 10 shareholders ranked by ownership shares or dollar value, as well as location, legal status, or any other metric 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 perform shareholder analysis by 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. Publicly traded companies will often need to report the number of shares held by investors. This can help demonstrate that there is no collusion between investors and publicly traded companies. For example, a mutual fund that continues to buy shares of a company can help increase the price of the shares, regardless of the value and financial position of the company.
Publicly traded companies sell shares to raise capital funds for business needs. A shareholder analysis provides information about the number of shares outstanding and how often an investment group buys shares. While this provides funds for a company to increase business operations, a mutual fund or investment group may also own shares of the supplier from which a company will purchase materials for business expansion. While it may not be illegal, it creates a twisted system of capital flow and the ability for an investment pool to influence companies and how they operate in the business environment.
Return on equity is another approach to shareholder analysis. Equity financing should help a company increase operating profit. However, issuing too many shares will increase business liabilities and dilute the share price of current shareholder investments. This allows companies to determine what effects new stock issues will have on the company’s general group of shareholders. Diluting the value of current investors’ holdings may cause these investors to sell their holdings 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 people often have compensation packages that offer them the opportunity to purchase shares at specific periods of time as a bonus. Executives and directors who do not exercise call options or sell their stock holdings may signal a warning about the direction of the company or the future value of the shares. While they certainly do not use inside information for these trades, failure to buy shares in the company is often interpreted as an unfavorable opinion of the company.
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