In the world of finance, stock premium has a major impact on the company. Both as an advantage and a challenge, stock premium plays an important role in determining the financial strength and relationship of the company with its shareholders. The following are some of the advantages and disadvantages of stock premium :

Advantages of Stock Premium

• Increase company equity : Stock premium is part of the company’s equity that contributes to increasing the company’s financial strength.
• Shows investor confidence in the company’s prospects : High stock premium shows that investors have confidence in the company’s prospects in the future.
• Can be used to cover losses : Stock premium can be used or utilized to cover company losses that may occur in the future.

Disadvantages of Stock Premium

• Burdens the company : Stock premium is considered a company obligation to shareholders. That means, the company must pay it back at a later date.
• Can reduce net profit : Because share premium cannot be distributed as dividends, it can have an impact on reducing the company’s net profit.