Valuation of the Shares

The next is a practical example for calculating the profitability of a buying and selling of share operation.

Buying and Selling Shares
Lets suppose that an investor does these following operations:

• March 28: He buys 160 shares from the company Bella Zinio S.A. at 2.725 ptas. each
• May 28: He collects a supplementary dividend per share of 36.45 ptas. gross. Retention on account of taxes of 25%.
• July 28: He sells on the market the 160 shares of the company Bella Zinio S.A. at 3,250 ptas. each.

The expenses for buying and selling on the stock market are estimated in 0.6% of the cash used in the respective operations.

You have to calculate the profitability of the operations in absolute terms, as an annuity base and as an internal rate.

Solution

Operations

March 28:  Buying of 160 shares at 2.725 ptas. each
Expenses: 0.6%

May 28: Collection of dividends of 36.45 ptas. Gross each
Retention= 25%

July 28: Selling of 160 shares at 3,250 ptas. Each
Expenses= 0.6%

March 28. Buying of shares
        160 x 2,725 = 436,000
0.006 x 436,000 =      2,616
                                438,616

May 28: Collection of dividends
 160 x 36.45  =     5,832
0.25 x 5,832  = (  1,458)
                               4,374

July 28: Selling the shares
       160 x 3,250  = 520,000
0.006 x 520,000 =   ( 3,120)
                                 516,880

Profitability
   R= P’ – P + dt  P

R= Profitability of the operation
P’= Selling price
P = Buying price
Dt = Liquid dividends

R= 516,880- 438,616 + 4,374 =  82,638  = 18.84 %

                       438,616  428,616

Annual profitability:
0,1884 x (12/3)= 75.36%

Internal rate of profitability:
IRP= (1 + 9,884) 12/3 – 1= 99.45%

How can the investor make profitable its investment into shares?