Frequently Asked Questions

What is a stock?

A stock is a security. For the company that issues it, a stock is an instrument of the collection of necessary funds (capital), for the buyer of a stock, it is an instrument of the investment. Unique characteristics of any stock, regardless of the legislation, are that the owner of a stock becomes a (co)owner in the company.

What rights do I as a shareholder have?

Bonds are written documents which obligate their issuer to pay back the bonds to their owner according to dynamics specified in the bonds and in the amount  specified in the mentioned bond.

Who can issue bonds?

Bonds are issued by the state (government bodies), i.e. the Ministry of Finance or other government body authorized for such purposes. In addition, bonds can be issued by local government or cities and companies.
 

Yes. They are called zero or very low coupon bonds, that is, deep coupon bonds.

What is the difference between bonds and shares?

The worldwide practice at the world's most developed financial markets has blurred the difference between securities and bonds. However,  the main difference is that the issuer of a stock has no legal obligation to pay back cash or other financial assets to the owner of the mentioned security, or the obligation to exhange other financial assets. In other words, the purchaser of a stock shall not expect the issuer to pay back his money as is the case with trading securities. The shareholder can have  the right to the  proportional share in the declared dividends or other capital share. The issuer is not legally bonded to perform such a share.
 

The quickest way to do so is to sell stocks to a third party. By doing so,  the money is paid back, but you lose the opportunity to benefit from the company's future profits. In case you do not need the money immediately, your investment is paid back either through dividends or the rise of stock price on the market.

What is the value of my stock?

In case of a sale, a stock's value is not the same as the amount ascribed to it or the amount paid for it. Instead, its value is defined by how much someone is willing to pay for it at the moment of sale. Many people dealing with stocks for the first time feel confused by the fact that they had to pay different amount than the one ascribed to the stock itself. It can often be the case that the stocks with a nominal value of 100 HRK can be sold for 30 or 40 HRK, but they can also reach the price of 130 HRK or even more. How is that possible? A nominal value, i.e. the amount printed, is an accounting category. It designates the accounting value of a stock at the moment of issuing. A share of any shareholder is calculated according to a nominal value and the number of votes that a shareholder has. A stock price is not its nominal value but its market value. A market value is created through the relation between demand and supply on the market, is not determined once and for all, on the contrary, it is always determined anew. If more individuals show interest for your stock, its market value increases and vice versa; if the interest turns low, its market value stagnates or decreases. Different national and international factors influence demand and supply, especially current business transactions at the company and the expectations on future business activities.
 

Issuing stocks enables long-term funding. It represents a way of raising necessary capital without taking loans. The company is relieved of any financial burdens as the capital raised need not be paid back, as is the case with taking loans. In addition, it is not obliged to pay interest rates. If stocks have already been placed on a stock exchange and are traded freely,  it is easy to determine the relevant price of new issuing. If the issuer's stocks are deemed attractive on the market they can facilitate many business combinations, i.e. business acquisitions or mergers, the development and funding of other projects, the increase in production….

There must be certain risks and disadvantages for the issuer – the company?

A risk of unfavorable acceptance of new stocks is always present. There is always a risk that the market will not accept the issue of stocks well. Consequences include not only increased costs of issuing, but also only partially sold issue. The issuer shall feel the pressure of the shareholder's expectation of regular and growing dividends. Once stocks are quoted on a stock market, the issuer is bound to fulfil his obligations of issuing regular reports in accordance with stock market rules. In addition, the issuer shall have to notify a stock market of all relevant business changes which can influence a stock price. In addition, for every enlisted company a real danger exists that a shareholder may accrue too many shares, up to the point when he deems the right moment for the redemption of all shares of a company.
 

The value of certain stocks can fluctuate greatly since  prices are influenced by numerous short-term factors. Indeed, these factors include numerous causes rahter  than  just those relating to business success of the issuer himself. In some extreme cases, the stock exchange can suspend the placement (trade) of stocks and make it harder for the investor to sell his stocks. In addition to the factors mentioned, it is noteworthy to stress at the end that the owners of common stocks shall be last to receive the remaining assets in case of liquidation (they shall be paid only after the claims of other creditors have been settled).