Ord Definition Finance - Financial Steps

In finance, “ORD” commonly refers to an Ordinary Share, often used interchangeably with the term “common stock.” Understanding ordinary shares is fundamental to grasping equity ownership in a company.

Definition:

An ordinary share represents a unit of ownership in a corporation. It’s the most common form of stock and typically carries voting rights, allowing shareholders to participate in corporate governance by electing board members and voting on key decisions. Holders of ordinary shares are entitled to a proportional share of the company’s profits, distributed as dividends, after all other obligations (like debts and preferred stock dividends) are met.

Key Characteristics:

Voting Rights: This is a crucial aspect. Each ordinary share typically grants one vote, giving shareholders influence over company policies and management. Larger shareholders wield more power.
Dividend Entitlement: Ordinary shareholders are eligible to receive dividends. However, dividend payments are not guaranteed. The company’s board of directors decides whether to distribute dividends, considering factors like profitability, investment opportunities, and financial stability. Preferred shareholders generally receive dividends before ordinary shareholders.
Residual Claim on Assets: In the event of liquidation (bankruptcy), ordinary shareholders have a residual claim on the company’s assets. This means they receive any remaining assets only after all creditors, bondholders, and preferred shareholders have been paid. This makes ordinary shares riskier than debt or preferred stock.
Potential for Capital Appreciation: The value of ordinary shares can increase over time if the company performs well and investor confidence grows. This potential for capital appreciation is a primary driver for investing in ordinary shares.
Limited Liability: Shareholders are only liable up to the amount of their investment. Their personal assets are protected from the company’s debts and obligations.

Why are Ordinary Shares Important?

Company Funding: Issuing ordinary shares is a way for companies to raise capital. This capital can be used for expansion, research and development, acquisitions, or debt repayment.
Investor Participation: Ordinary shares provide investors with the opportunity to participate in the potential success of a company. They allow investors to benefit from the company’s growth through dividends and capital appreciation.
Market Indicator: The price of a company’s ordinary shares reflects investor sentiment and expectations about the company’s future prospects. Tracking share prices is a key indicator of a company’s financial health.
Corporate Governance: Ordinary shareholders’ voting rights play a vital role in corporate governance, ensuring that management acts in the best interests of the shareholders.

In summary, ordinary shares are a fundamental financial instrument representing ownership in a company. They provide voting rights, the potential for dividend income and capital appreciation, but also carry risk due to their residual claim on assets. Understanding ordinary shares is essential for anyone interested in investing in the stock market and participating in the growth of businesses.