please explain the concept of equity and preference shares. Why do people buy equity shares if the dividend here is fluctuating?i know ppl may hav a chance of becoming director, but a common man would not want to be one. n is the face value of both the types of shares same?
The answer given by the above two users is correct. As in preference shares the rate if dividend is fixed. Therefore, the holder of such shares will get a fixed rate even when there are high profits. On the other hand, the equity shareholders are the residual claimants of profit and as a result the higher the profits, the higher will be the dividend paid to equity shareholders.
Moreover, the face value of equity share is not the same as the face value of preference shares. Generally, the face value of equity share is Rs.10, while, the face value of preference shares is Rs.100. However, it does not means that the company will always issue these shares at the aforementioned face value. The face value of both the equity shares and the preference shares will depend on the debt burden, credit worthiness and goodwill of the company.