A stock's adjusted closing price is the closing price of a stock on a given day that has been altered to account for corporate actions that might affect the stock's price. At the Pakistan Stock Exchange (PSX), these adjusted prices are crucial for getting an accurate picture of a stock's historical performance, as they reflect the true return to an investor.
Why are Adjusted Prices Used?
The standard closing price of a stock doesn't account for corporate actions that impact the share price but don't reflect the company's operational performance. For example, if a company listed on the PSX issues a dividend, the stock's price will drop on the ex-dividend date by the amount of the dividend. A standard price chart would show this as a loss, even though shareholders received value in the form of a dividend payout. The adjusted price corrects for this, providing a continuous and more realistic view of the stock's value.
What Events Lead to Price Adjustments?
The most common events at the PSX that require adjusting a stock's price are:
Dividends: When a company pays a cash dividend, the stock's price is adjusted down by the dividend amount on the ex-dividend date to show the value that has been distributed to shareholders.
Bonus Shares: In Pakistan, companies often issue bonus shares, which are new shares given to existing shareholders for free. This increases the number of shares in circulation and decreases the price per share proportionally. For example, if a company gives a 10% bonus, a shareholder gets 10 new shares for every 100 they owned, and the price is adjusted to reflect this increase in share count.
Stock Splits: A stock split is a corporate action that increases the number of shares and decreases the price per share proportionally. For example, in a 2-for-1 split, a shareholder receives two shares for every one they owned, and the price is halved. The adjusted price would reflect this change, making historical prices comparable to the new price.
Reverse Splits: This is the opposite of a stock split. A reverse split decreases the number of shares and increases the price. If a company performs a 1-for-10 reverse split, the adjusted price for historical data would be multiplied by ten to be consistent with the new, higher price.