A Good Man
Copyright© 2011 by Marc Nobbs
Chapter 20: Inheritance
Will wasn’t kidding when he said that the file contained ‘all the details.’
The summary he first handed me included just three items: Instant Access Accounts, Investment Accounts, and Company Shares. The rest of the file was organised into those three categories.
I had exactly fifty thousand pounds in a place called the ‘JMS Client Account.’ JMS Law was the firm where Will worked, so that account must have held their clients’ money. Will had mentioned transferring fifty thousand to my bank account, so it was probably coming from there. There were three other accounts in the ‘Instant Access’ section, none of which contained more than ten thousand.
I had several investment accounts, each with different names that didn’t mean much to me—things like 5-Year Bonds and 30-Day Notice Account, among others. In total, there was just over two hundred thousand pounds in these accounts.
Finally, there was a list of about fifty companies in which I now held shares. The list was as surprising as it was fascinating. Most of the shareholdings were worth between two and three thousand pounds, although some were as low as five hundred, and a couple were worth nearly five thousand. I suppose that was due to how well each company was performing. In total, they were worth just under one hundred and twenty thousand pounds.
“I can’t believe I own shares in Marks & Spencer,” I said to Will when he returned to the room. “And Barclays. Tesco. This is incredible. Did you decide which companies to buy?”
He shook his head. “These were your parents’ holdings. About two-thirds in Ben’s name and the rest in Millie’s. They were split equally between you and Vicky.”
“Oh. Right. I thought you ... Never mind. You know, most of these are really well known, but some I’ve never heard of. What does AstraZeneca do? Did I say that right?”
Will smiled. “They’re a big pharmaceutical company. Used to be part of ICI. You’ve heard of them, right?”
I nodded. “What about Aggreko?”
“Now, I’m not sure about them. Why don’t you Google them when you get home?”
“Yeah. I think I will. Just out of interest, you know?”
He chuckled, and I furrowed my brow. “What?”
“Nothing. I just take it that since you’re asking me about the public companies, you haven’t looked at the last page yet.”
As I flipped to the last page while still looking at Will, I said, “No, why? What’s on the last page?” I looked down at the paper. “What? No way!”
I could hear the smile in his voice as he said, “I believe the appropriate response is ‘Yes way.’”
“But ... I mean ... No fucking way.” I looked up at him. “Sorry. I just...”
“Surprised?”
“Shocked is more like it. How can I own...” I looked down at the page again. “A thousand shares?”
“One per cent of the company. Yes.”
“But I thought it was privately owned.”
“It is. You can’t buy these shares on the stock market.”
“So...” I shook my head. “How?”
“Do you remember who I said you were descended from?”
The light dawned, and I nodded. “William Phipps,” I said, now understanding the real significance of what he’d told me earlier.
“Exactly. When he died, Phipps left his shares in the company to his three daughters. Those shares have continued to be divided up and passed down through the generations until Ben was left with two per cent, which has now been split between you and Vicky.”
I stared at the file for a few seconds, unable to quite believe what had happened over the past hour. I’d gone from a kid with nothing, not even parents, working hard at school to make something of my life, to having more wealth than I ever dreamed of and owning a part of the company that dominated my town and the lives of everyone living there.
It was then that I realised something was missing from the information in front of me.
“Why is there no value? All the other companies had values next to the number of shares. Why not here?”
Will thought for a second, biting his lip. His brow furrowed. Then he nodded, and the wrinkles on his forehead faded. I was sitting at his desk, and he had been standing by my side. Now he moved to sit on the edge of the desk at right angles to me, twisting his body to face me. He rested his hands on his legs.
“There are three ways you can value any company—the Share Capital, the Book Price and the Market Capitalisation. And all three are significantly different. They measure different types of value.”
Looking up at him, I nodded. “Okay.”
“The Share Capital is...” He took a breath. “Look, if you own a share of a company, you’ll have a certificate to prove it. There are no physical paper certificates these days, but the principle remains the same. That certificate shows the amount the shareholder invested in the company to purchase that share. The Share Capital is the total value of all those certificates.”
“Okay, so what’s that for Liddington-Phipps?”
“Its Share Capital is one million pounds, across one hundred thousand shares, meaning each share was originally worth ten pounds.”
I did a quick calculation in my head. “So, my thousand shares are worth ten thousand pounds?”
Will nodded. “Yes. And no. That’s the money you’d get back if you sold these shares back to the company. It’s the investment value you’d get back. Not that anyone with any sense would ever do that. It’s all theoretical.”
“Why not? If I wanted my money back, that would be an easy way to do it, wouldn’t it?”
“Yes, it would be, but you’d be selling yourself short. The shares could be worth much more than that if you sold them to someone else—someone who wanted them. And, you need to keep in mind what it is these shares actually represent.”
I frowned. “Which is?”
“A share of the company. In your case, one percent of the company. A one-hundredth share. And not just of the company, but of its profits, too. So, let’s say the company made a half-million-pound profit every year for five years. You’d be entitled to one percent of that in each of those five years.”
I closed my eyes and did some more maths. “That’s five thousand a year for five years. Twenty-five thousand.”
Will smiled. He’d made his point.
“Right. Okay. So, what are the other two valuations?”
“Well, the Book Value is what the company itself thinks it’s worth. It adds up everything it owns, including its stock of goods and materials, its bank accounts, the factory building, all the equipment—even the tea urn. Everything of any value. Anything that could, potentially, be sold. Then it subtracts everything it owes, including all its debts, such as those to its staff, suppliers, the government and bank loans.
“It is, in essence, the money that would be left over if the company closed down, sold everything and settled all its bills.”
“And that would be higher than the Share Capital, I’d guess,” I said. “I mean, even the factory would be worth a few million on its own, wouldn’t it?”
“If the company is doing well, then yes. But if it’s heavily in debt, then it could even have a negative value. Selling everything might not generate enough money to repay all the debts.”
“Really? I didn’t realise you could have a negative value.”
“You can have a bank overdraft, can’t you? That’s a negative value.”
“I suppose.”
“Now, the Book Value is important even if it doesn’t actually mean anything unless the company closes. One of the things you must do when handling someone’s estate is inform the Government of the estate’s value. If it exceeds a certain threshold, then you have to pay tax on it. That’s called Inheritance Tax. The Book Value of Liddington-Phipps is the value we had to report to the Government.”
I lifted my hand to my face and rubbed my temples. I didn’t understand any of this. Share Capital and Book Values. This was real-world stuff. Grown-up stuff. But I suppose I was a grown-up now. I was eighteen. But did I need to know this? How many eighteen-year-olds knew this?
“It’s heavy going, isn’t it?” Will said.
I looked up at him. “You’re not kidding.”
“Well, we’re nearly done. There’s one more valuation you need to know, and this one explains why that file doesn’t have a figure in for your Liddington-Phipps shares.”
I raised an eyebrow and thought back to the first thing he’d said. “Market Capital-something.”
“Capitalisation. Yes.”
He held out a hand to me. “May I?”
I gave him the file, and he turned back to the list of big companies I had shares in.
“All these companies are publicly traded, so on any given day, you know how much each share is worth. The price is published on the stock exchange. The values in this file are based on the share price at the end of trading this past Tuesday. That’s when I had one of the paralegals in my team put it together. But if you recompiled the figures today, the values would be different.” He smiled. “In fact, I think most of them would have gone up—it’s been a good week.”
“So, you mean I’m even richer than it says in here?”
He smiled. “Probably, but not by much. All your bank accounts will have earned a few more days’ interest, too.”
“That doesn’t explain why Liddington-Phipps doesn’t have a value in there, though.” I pointed to the file in his hand.
“Public companies are required to publish much more detailed information about their performance than private ones. Yes, there are some things private companies have to publish publicly, like a list of shareholders, for example, and their Book Value, but it’s nowhere near as detailed as, say, Tesco.
“Now, the reason for that is anyone can buy shares in Tesco. Anyone can go to a broker and buy shares. That’s literally what the Stock Market is—a market where you buy shares. And like in a supermarket—for example, in Tesco—you need to know how much something costs before you buy it. That’s why the value of all these shares is listed publicly—because any member of the public can buy them. The Market Capitalisation is the total value of all the shares in a company added together, based on the current share price.”
I nodded. “And the share price isn’t fixed? It goes up and down.”
“Yes.”
“Why?”
“Well, remember I said that the shares don’t just represent ownership of the company, they are also a promise from the company to pay the shareholder a share of the company’s profits. That’s the main reason for owning shares, really. Sure, some people try to ‘play’ the stock market, but that’s just a fancy form of gambling. Serious investors invest for the long term, and a share of the profits is a part of that long-term investment. When a company is doing well, making a good profit, then the shares are worth more than when it’s doing badly—”
“So, people will pay more for the shares, because the profits they get a share of will be higher?”
“Exactly. That’s how the stock market works. All the company information is public, so when a company is doing well, more people want to buy the shares, so they go up in value.”
“And when they do badly, less people—”
“Fewer.”
I stared at him. “Fewer people want to buy the shares, so they go down in price.”
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