Capital Reduction

AAA

DEFINITION of 'Capital Reduction'

The process of decreasing a company's shareholder equity through share cancellations and share repurchases. The reduction of capital is done by companies for numerous reasons including increasing shareholder value and producing a more efficient capital structure.

INVESTOPEDIA EXPLAINS 'Capital Reduction'

After a capital reduction, the number of shares in the company will decrease by the reduction amount. In some capital reductions, shareholders will receive a cash payment for shares cancelled - but, in other situations, there is minimal impact on shareholders.

RELATED TERMS
  1. Shareholder

    Any person, company or other institution that owns at least one ...
  2. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  3. Additional Paid In Capital

    A value that is often included in the contributed surplus account ...
  4. Shareholders' Equity

    A firm's total assets minus its total liabilities. Equivalently, ...
  5. Share Capital

    Funds raised by issuing shares in return for cash or other considerations. ...
  6. Retained Earnings

    The percentage of net earnings not paid out as dividends, but ...
RELATED FAQS
  1. What happens when a company buys back its shares?

    When a company performs a share buyback, there are a few things that the company can do with the securities they buy back. ... Read Full Answer >>
  2. Why should investors research the C-suite executives of a company?

    C-suite executives are essential for creating and enacting overall firm strategy and are therefore an important aspect of ... Read Full Answer >>
  3. What is the difference between a direct and an indirect distribution channel?

    A direct distribution channel is organized and managed by the firm itself. An indirect distribution channel relies on intermediaries ... Read Full Answer >>
  4. How can an investor determine a company's annual return from looking at its financial ...

    The funds in a share premium account cannot be used for a company's general expenses. These funds are restricted in terms ... Read Full Answer >>
  5. What are some advantages of ordinary shares?

    Ordinary, or common, shares have many benefits for both the investor and the issuing company. For individuals, investing ... Read Full Answer >>
  6. What is the difference between preference and ordinary shares?

    Preference shares, also known as preferred shares, have the advantage of a higher priority claim to the assets of a corporation ... Read Full Answer >>
Related Articles
  1. Investing

    A Breakdown Of Stock Buybacks

    Find out what these company programs achieve and what it means for stockholders.
  2. Options & Futures

    The "True" Cost Of Stock Options

    Perhaps the real cost of employee stock options is already accounted for in the expense of buyback programs.
  3. Investing

    The Strong Dollar’s (Real) Toll On Tech Stocks

    A large portion of U.S. technology companies’ sales occur overseas, given the strong international business and consumer demand from many U.S. tech firms.
  4. Stock Analysis

    Google Stock: A Tale of Two Share Classes

    Google stock comes in two different flavors with different rights for shareholders.
  5. Economics

    What is a Business Model?

    Business model is the term for a company’s plan as to how it will earn revenue.
  6. Professionals

    Understanding Operations Management

    Operations management is concerned with converting materials and labor into goods and services as efficiently as possible to maximize profits.
  7. Investing Basics

    What are Ordinary Shares?

    Ordinary shares are any type of shares that are not preferred and don’t pay any type of predetermined dividend amount.
  8. Investing News

    A New Corporate Governance Initiative In Japan

    Expectations are low that Japan can create a corporate governance climate that meets global standards, but a new initiative is aimed at doing just that.
  9. Investing Basics

    Explaining Rights Offering

    A rights offering is an offer by a company to its existing shareholders of the right to buy additional shares in proportion to the number they already own.
  10. Investing Basics

    What is a Record Date?

    The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.

You May Also Like

Hot Definitions
  1. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  2. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  5. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  6. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
Trading Center