Right and Bonus Share Difference

Right and Bonus Share Difference

Right issue is a method of raising new capital, where shares are offered to existing shareholder in proportion to their shareholding in the company. On other hand bonus issue is a dividend paid to the shareholder in shape of shares. Difference between right and bonus Shares has been explained below;

1.    Objective

Right share are issued to raise new equity or finance for the organization, where bonus shares are offered in lieu of dividend to avoid cash outflow of dividend. It means bonus share is an alternate to cash dividend and this option may be exercised by companies facing liquidity problems.

2.    Growth Opportunities

Right share may bring growth to the company, because right issue brings new finance to the company and such finance may be utilized in the growth activities. In case of bonus issue, there is no finance generated, therefore no growth opportunity is associated with bonus issue.

3.    Impact on Share Price

in case of right share declines of share price is lower than bonus issue, because right issue bring new finance to the company and such finance would generate more profit for the company, where in case of bonus issue there is no expectation for more profits, therefore share price are expected to fall more sharply in case of bonus issue.

4.    Impact of EPS

Bonus share will have great impact on earnings per share , because the same level of profit shall be shared by more profit , where in case of right share , such impact will be lower, because there would also be increase in the profit with new finance due to right issue.