Milestone - Profitability, page-17

@novicestudent
I stumbled on your question here so my comments don't relate to the prospectivity for Pointerra.

Dividends relate in no way to the share price of a company. I am aware of a company Credit Intelligence (CI1) which paid a dividend in the last 12 months and is trading at less than 5c per share.

The share price is a product of many factors including:

• The number of shares on issue
• The fundamental value of the business
• Enthusiasm or lack thereof for the future of the business, (Best refered to as 'speculation').

Using a most basic example a company which has 1 share only, and a $10 note as its sole asset (leaving aside its establishment value) should trade at $10. If however there were 10 shares in that company each share should trade at $1. You can see what effect the number of shares makes to the share price.

If that same company (with 10 shares on issue) was trading at $2 per share you could make a very good argument that the company was being overvalued by the market, conversely if it were trading at 50c, undervalued.

Hopefully what this example shows you is that the price of a share tells you nothing about the value of a share. It is very difficult to understand anything about what a business is worth if all you have is the price. I am alluding to an aspect of investing known as fundamental analysis. The difficulty without some knowledge of the fundamentals of a company's financial statements and the lingo of accounting is that you are vulnerable to being all at sea when the market moves rapidly against you. Without the touchstone of valuation you are far more likely to make exactly the wrong decision when your emotions get the better of you. So I would encourage you to follow your own intuition and do more research in this regard.

Coming back to dividends. Companies pay dividends out of profits, well actually they pay them out of cash. There is s a strong correlation to the cash flow of the business and it's propensity to pay a dividend, particulalrly if the business does not require the cash for future expansion, acquisition or debt repayment. It is important to recognise where a company is in it's life cycle in this respect. The "younger" a company is the more it requires cash for growth, if the company successfully matures it needs less cash for expansion and can therefore return excess cash to shareholders by way of dividends.

Keep asking questions, there are some good contributors here who can speed up the process a bit for you, much more quickly than if you stay silent.