Skip to content

NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance

A company's promoters hold 60% of its equity shares, and 40% of those promoter shares are pledged with lenders. What percentage of the company's total equity is pledged, and what is the key analytical concern?

The pledged amount is 24% of total equity, calculated as 60% multiplied by 40%. The concern is that a fall in share price could trigger margin calls or invocation of the pledge, leading to forced sales and possible loss of promoter control.

  1. A40% of total equity; pledge shows strong promoter confidence
  2. B24% of total equity; a price fall may trigger invocation and loss of promoter controlCorrect
  3. C16% of total equity; pledges only affect dividend declaration
  4. D24% of total equity; pledge has no effect on share price risk

Explanation

Pledged shares as a share of total equity = 60% x 40% = 24%. The 40% figure uses the wrong base, and 16% comes from adding rather than multiplying incorrectly (40% of 40%). If the share price falls, lenders may demand more security or invoke the pledge, selling shares and possibly diluting promoter control and hurting sentiment.

Did you get it right without looking?

One question tells you little. A timed set on Company Analysis - Business and Governance shows your real accuracy, how long you take and where you lose marks.

Practise Company Analysis - Business and GovernanceFree diagnostic mock

More Company Analysis - Business and Governance questions