Water Stock With

its example

Unit-5
U.Poorni (202AA0713)
 Meaning
Watered stock refers to the shares of a
corporation that are issued at an inflated
value to dupe investors. As a result, the
value of these shares is projected much
higher than their intrinsic value.  Shares of
this nature are issued by companies as a
way of tricking and cheating investors.
Watered stock are known as securities
fraud.
 DO U KNOW ?
 Watered stock refers to the shares of a
corporation that are issued at an
inflated value to dupe investors.

 Daniel Drew invented the term watered

stock in the finance world.

 During the late 1800s, owners of a

corporation would make exaggerated
claims about a company's profitability
or assets, with an intent to sell the
shares of the concerned company at
an inflated value.
- Example
“In1873, the 
Railway Commissioners of Illinois
 stated that stocks of railway
companies worth $75,000,000 were
watered, otherwise expected to
generate $6,000,000 in profit for the
shareholders every year. These
malpractices were not confined to
Illinois but were actively happening
across all the states, mostly in New
York, New Jersey, Pennsylvania, and
the Pacific States.
 Cont...

 if the founders of Company XYZ invested $10 million in

the company and then decided to take the company
public by selling 50 million shares priced at $3 (a $150
million market capitalization), analysts might say that
Company XYZ is issuing watered stock.
 Causes of Watered Stock!
1)Unsuccessful adoption of the 
depreciation policy

2)Acquisition of a company’s
possessions at a significantly higher
price

3)Purchase of worthless intangible

assets at a much higher price.
ISN'T IT!
Thank YOU.....