(and suppose that it is in £1 shares) and reserves of £500,000, the reserve would be capitalized by the issue to the shareholders of one new share for every brace of shares held. The result would be that on the liabilities side of the balance-sheet instead of seeing
| Capital | £1,000,000 |
| Reserve Fund | £500,000 |
the legend would run:
| Capital | £1,500,000 |
and the Reserve Fund would be wiped out, leaving a clean space for the Board to begin building it up again.
This operation of capitalizing reserves is usually hailed as a "bull point" by shareholders and speculators, and is presumed to confer some juicy benefit on the former. In fact it merely gives them in the form of shares what was already theirs in the form of reserves. It has no effect whatever on the assets or earning power of the company, and unless the profits increase the shareholders will in future receive no more in dividend from their larger holding than they would have had if no such change had been made.
The real advantage of it is that it shows more clearly the true facts of the case and the true rate that the company is earning on the
