What is a Shareholder Analysis?

Shareholder analysis is a review function publicly held companies go through to discover information about individuals and groups owning stock in their company. for example, such an analysis might have lists of the top 10 shareholders ranked by shares owned or dollar value, as well as location, legal status, or any other metric predetermined by the company. Along with this qualitative information, companies can conduct a quantitative analysis. This focuses on the financial aspect of shareholder investments. External analysts may also conduct a shareholder analysis when reviewing a company’s operations and financial information.

While individual investors can purchase a company’s stock, most large investments come from investment groups or mutual funds. Publicly held companies will often need to report the number of shares held by investors. This can help prove that no collusion exists among investors and publicly held companies. For example, a mutual fund that continues to purchase a company’s stock can help increase the stock price, regardless of the company’s value and financial position.

Publicly held companies sell stock to raise equity funds for business needs. A shareholder analysis provides information on the number of shares outstanding and how frequently an investment group purchases stock. While this provides funds for a company to increase business operations, a mutual fund or investment group can also own stock in the vendor from which a company will purchase materials for business expansion. While it may not be illegal, it does create a twisted system of capital flow and the ability of an investment group 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 company increase operational profit. However, issuing too much stock will increase business liabilities and dilute the stock price of current shareholder’s investments. This allows for companies to determine what effects new stock issuances will have on the overall group of company shareholders. Diluting the value of current investor holdings may result in these investors selling off their holdings because the company cannot generate enough returns on current equity.

Shareholder analysis can also involve the executive managers or directors of a publicly held company. These individuals often have compensation packages that offer them an opportunity to purchase stock at specific periods of time as a bonus. Executives and directors who do not exercise purchase options or sell their stock holdings can signal a warning about the direction of the company or future value of stock. While they most certainly do not use inside information for these trades, failing to buy stock in the company is often interpreted as having unfavorable opinion about the company.