Public companies conduct shareholder analysis to discover information about shareholders.
Shareholder analysis is a review function used by publicly traded companies to discover information about individuals and groups that own shares in their companies. for example, such an analysis may have lists of the top 10 shareholders ranked by shares or dollar value, as well as location, legal status, or any other company-predetermined metric. Alongside 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 when reviewing a company’s operations and financial information.
While individual investors can buy shares of a company, most large investments come from investment groups or mutual funds. Public 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 listed companies. For example, a mutual fund that continues to buy shares in a company can help increase the share price, 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 on the number of shares outstanding and how often an investment group purchases shares. While this provides funds for a company to increase business operations, a mutual fund or investment group may also own shares in the supplier from which the company will purchase materials for business expansion. While it may not be illegal, it creates a biased system of capital flow and an investment group’s ability to influence companies and how they operate in the business environment.
Return on equity is another focus of shareholder analysis. Equity financing should help a business increase operating profit. However, issuing too many shares will increase the company’s liabilities and dilute the share price of shareholders’ current investments. This allows companies to determine what effects new share issues will have on the company’s overall group of shareholders. Diluting the value of the current investor’s holdings may result in those investors selling because the company is unable to generate sufficient returns on current capital.
Shareholder analysis may also involve the CEOs or directors of a publicly traded company. These people often have compensation packages that offer them the opportunity to buy stock at specific times as a bonus. Officers and directors who do not exercise call options or sell their shares may signal a warning about the direction of the company or the future value of the shares. While they certainly don’t use inside information for these trades, not buying the company’s stock is often interpreted as reflecting poorly on the company.