Morningstar Inc.

REVIEWED BY JAMES CHEN

Updated Jan 15, 2018

DEFINITION of Morningstar Inc.
Morningstar is a Chicago-based investment research firm that compiles and
analyzes fund, stock and general market data. They also provide an extensive line
of internet, software and print-based products for individual investors, financial
advisors and institutional clients. The research reaches all corners of the world,
including North America, Europe, Australia, and Asia. Among its many offerings,
Morningstar's comprehensive, one-page mutual and exchange-traded fund (ETF)
reports are widely used by investors to determine the investment quality of the
more than 2,000 funds.

BREAKING DOWN Morningstar Inc.

Morningstar is a respected and reliable source of independent investment
analysisfor all levels of fund and stock investors, ranging from inexperienced
beginners to sophisticated experts. This extensive line of products empowers
various financial professionals, including individual investors, financial advisors,
asset managers, retirement plan providers, and institutional investors. The data
and research provided by Morningstar include insights on investment offerings,
managed investment products, publicly listed companies, and real time market
data. Its website includes free information on individual funds and stocks.
Complete data is available through subscription services and publications starting
at $199 for a one year membership. Many financial terminals like Bloomberg and
FactSet distribute Morningstar publications.

Morningstar also offers investment management services through its investment

advisory subsidiary, with more than $200 billion in assets under management.
The company continues to expand into new markets and now operates in 27
countries.

Morningstar filed for an initial public offering in May of 2005 at $18.50 per share.
They elected to follow a unique method of issuing public shares called OpenIPO,
similar to Google (GOOGL) in 2004. It is a variation of the traditional method that
treats all qualifying bids in an impartial manner. This provides individual investors
equal access to bid on the price of the stock. Today, Morningstar is listed on
Nasdaq under the ticker symbol MORN. As of January 2018, shares were trading
below $100 with a market capitalization slightly above $4 billion.

History of Morningstar
In 1984, Joe Mansueto left his job as a stock analyst when he realized investors
lacked the necessary information to make intelligent investment decisions. At the
same time, the mutual fund industry started to accelerate as retirement
plans shifted from defined benefit like company pensions to defined contribution.
These changing dynamics informed the foundation of Morningstar. Over the next
30 years, Morningstar continued to add products and services that help investors
of various expertise. Today, Joe Mansueto is no longer the CEO of Morningstar
but still holds the position of executive chairman.

Where We Started

It started with an idea—one great idea from a 27-year-old stock analyst. Joe
Mansueto thought it was unfair that people didn’t have access to the same
information as financial professionals. So he hired a few people and set up shop in
his apartment—to deliver investment research to everyone.

Where We Are Today

We didn’t know then what the company would look like today, but we knew the
commitment to our mission—to empower investor success—wouldn’t change.
We’ve empowered investors all over the world, and we’re continuing to look for
new ways to help people achieve financial security.

Employees 5,230

countries 27

investments covered 621,370

https://www.morningstar.com/company/about-us

Kunal Kapoor, CFA*Chief Executive Officer

Joe Mansueto*Executive Chairman
It started with an idea—one great idea from a 27-year-old stock analyst. Joe
Mansueto thought it was unfair that people didn’t have access to the same
information as financial professionals. So he hired a few people and set up shop in
his apartment—to deliver investment research to everyone.
 BASIS FOR
DEBT EQUITY
COMPARISON

Meaning Funds owed by the company Funds raised by the

towards another party is company by issuing shares
known as Debt. is known as Equity.

What is it? Loan Funds Own Funds

Reflects Obligation Ownership

Term Comparatively short term Long term

Status of holders Lenders Proprietors

Risk Less High

Types Term loan, Debentures, Bonds Shares and Stocks.

etc.

Return Interest Dividend

Nature of return Fixed and regular Variable and irregular

Collateral Essential to secure loans, but Not required

funds can be raised otherwise
also.

To be done:

Venture cap
Private equity

Megers and aquisiition

Equity

Nasdaq

Ms-excel go through

Counter parties

Insurance

Acuris job profile & material

Crisil job profile & material

Aptitude-quant,logical resoning,vocabulary

Equity Share and its Types

Equity share is a main source of finance for any company giving investors rights to
vote, share profits and claim on assets. Various types of equity share capital are
authorized, issued, subscribed, paid up, rights, bonus, sweat equity etc. The
expression of the value of equity shares are in terms of face value or par value,
issue price, book value, market value, intrinsic value, stock market value etc.
In the world of finance and investment management, ‘equity share’ is a big word
and we frequently use it in every next discussion. We call it stock, ordinary share,
or shares, all are one and the same. Explaining equity shares in a page or a bunch
of pages is very difficult. Let us still try to define it in a summarized manner as
possible.
Normally, a company is started with equity finance as its first source of capital
from the owners or promoters of that company. After a certain level of growth,
there is a requirement for more capital for further growth. The company then
finds an investor in the form of friends, relatives, venture capitalists, mutual
funds, or any such small group of investors and issue fresh equity shares to these
investors.
 A point comes where the company
reaches a very big level and requires huge capital investment for business growth.
Initial Public Offer (IPO) is the offer of shares which the company makes to the
general public for the first time. And Follow on Public Offer (FPO) are more such
offers in future to the public.

Table of Contents [show]

EQUITY SHARES
They fall under long-term sources of finance- category because legally they are
irredeemable in nature. For an investor, these shares are a certificate of
ownership in the company by virtue of which investors are entitled to share the
net profits and have a residual claim over the assets of the company in the event
of liquidation. Investors have voting rights in the company and their liability to the
company limits to the amount of issue price of the equity stock.
TYPES OF EQUITY SHARES
There are various class of shares (equity) dependent on various things. Let’s
discuss them.

In the financial statements of a company, we place the equity shares on the

liability side of the balance sheet. Their classification into various categories is as
follows:
AUTHORIZED SHARE CAPITAL
It is the maximum amount of capital which a company can issue. The companies
can increase it from time to time. For that we need to comply with some
formalities also have to pay some fees to the legal bodies.

ISSUED SHARE CAPITAL

It is that part of authorized capital which the company offers to the investors.
SUBSCRIBED SHARE CAPITAL
It is that part of issued capital which an investor accepts and agrees upon.

PAID UP CAPITAL
It is the part of the subscribed capital, which the investors pay. Normally, all
companies accept complete money in one shot and therefore issued, subscribed
and paid capital becomes one and the same. Conceptually, paid-up capital is the
amount of money which a company actually invests in the business.

Apart from the above, there are other types of shares (equity) also.
RIGHTS SHARES
These shares are those which a company issues to it’s existing shareholders. The
company issues such kind of shares in order to protect the ownership rights of the
existing investors.
BONUS SHARES
When the company issues shares to its shareholders in the form of a dividend, we
shall call them bonus shares. There are various advantages and disadvantages of
bonus shares like dividend, capital gain, limited liability, high risk, fluctuation in
the market, etc.

SWEAT EQUITY SHARE

Sweat equity shares are issued to exceptional employees or directors of the
company for their exceptional job in terms of providing know-how or intellectual
property rights to the company.
VARIOUS PRICES OF EQUITY SHARES
PAR OR FACE VALUE
Par or face value is the value of shares which we record in the books of accounts.

ISSUE PRICE
This price is the price which a company actually offers to the investors. Normally,
the issue price and face value of a share are the same in the case of new
companies.

SHARE/SECURITY PREMIUM AND SHARE AT DISCOUNT

When issuance of shares is at a price higher than face value, we shall call this
excess amount to be premium. Contrary to it, when the issuance of shares is at a
price lower than face value, we shall call this deficit amount to be discount.

BOOK VALUE
The calculation of the book value will be:
Paid up Capital + Reserves and Surplus – Any Loss / The total number of equity
shares of the company

This is the balance sheet value of shares. This is an important value in the case
of Mergers and Acquisition.
MARKET VALUE
In the case of companies listed on stock exchanges, the market value of the share
is the price at which they are currently sold in the market. It is also called stock
market value. It may happen that stock market value and value as per
fundamental principles differ. Because there are a number of sentiments that
affect the stock market value.

FUNDAMENTAL VALUE
The number of times the fundamental value of the security is calculated for the
purpose of the Merger or valuation. Its calculation is as per (i) Dividend Discount
Model (ii) Price Earning Ratio Method (iii) Earning Capitalization Method (iii) Chop
Shop method.

INVESTING AND FINANCING ANGLE OF EQUITY SHARES

When talking about equity shares, there are two angles. One investor angle
wherein the investor invests in equity shares and second financing angle where a
company accepts the finance in the form of equity. There are pros and cons of
both of these as described below.

Financing Angle: Benefits and Disadvantages of Equity Finance

Investor Angle: Benefits and Disadvantages of Equity Shares Investment

Types of Shares
A share or the proportion of interest of a shareholder is equal to the proportion of
the amount paid to the total capital payable to the company. Let us look at the
various types of shares a company can issue – equity shares and preferential shares.
Shares

A share in the share capital of the company, including stock, is the definition of the
term ‘Share’. This is in accordance with Section 2(84) of the Companies Act, 2013. In
other words, a share is a measure of the interest in the company’s assets held by a
shareholder. In this article, we will look at the different types of shares like
preferential and equity shares. Further, we will understand certain definitions and
regulations surrounding them.

The Memorandum and Articles of Association of the company prescribe the rights
and obligations of shareholders. Further, a shareholder must have certain
contractual and other rights as per the provisions of the Companies Act, 2013.

Section 44 of the Companies Act, 2013, states that shares or debentures or other
interests of any member in a company are movable properties. Also, they are
transferable in the manner prescribed in the Articles of the company. Further,
Section 45 of the Act mandates the numbering of every share. This number is
distinctive. However, if a person is a holder of the beneficial interest in the share,
then this rule does not apply (example: share in the records of a depository).

Kinds of Share Capital

(Source: WealthVidya)
According to Section 43 of the Companies Act, 2013, the share capital of a company
is of two types:

1. Preferential Share Capital

2. Equity Share Capital

Preferential Share Capital

The preferential share capital is that part of the Issued share capital of the company
carrying a preferential right for:

 Dividend Payment – A fixed amount or amount calculated at a fixed rate. This

might/might not be subject to income tax.

 Repayment – In case of a winding up or repayment of the amount of paid-up

share capital, there is a preferential right to the payment of any fixed
premium or premium on any fixed scale. The Memorandum or Articles of the
company specifies the same.
Equity Share Capital – Equity Shares

All share capital which is NOT preferential share capital is Equity Share Capital.
Equity shares are of two types:

1. With voting rights

2. With differential rights to voting, dividends, etc., in accordance with the rules.
In 2008, Tata Motors introduced equity shares with differential voting rights – the
‘A’ equity shares. According to the issue,

 Every 10 ‘A’ equity shares have one voting right

 ‘A’ equity shares get 5 percentage points more dividend than the ordinary
shares.
Due to the difference in voting rights, the ‘A’ equity shares traded at a discount to
ordinary shares with complete voting rights.

Deeming of Capital as Preferential Capital

In certain cases, capital is deemed as preferential capital even though it is entitled to

either or both of the following rights:

1. For dividends, apart from the preferential rights to amounts specified above,
it can participate (fully or to a certain extent) with capital not entitled to the
preferential rights.

2. In case of a winding up, apart from the preferential right of the capital
amounts specified above, it can participate (fully or to a certain extent), with
capital not entitled to preferential rights in any surplus remaining after
repaying the entire capital.
Remember, Section 43 is not applicable to private companies if the Memorandum
or Articles of Associates specifies it.

Solved Question on Equity Shares and Preference Shares

Q: An equity share owner enjoys the same privileges as a preferential share owner.
True or False?

Ans: This statement is false. A preferential shareowner has a few privileges over the
equity share owner.

 He gets paid his dividend before that equity shareowners

 During liquidation, the company will pay a preferential shareowner first,

ahead of the equity shareowner.