4. Equities Flashcards
What are the Memorandum and Articles of Association?
Memorandum; legal statement signed by shareholders agreeing to form the co.
Articles; rules about running the company agreed by shareholders, director and secretary
What are the 4 main methods for IPOs?
Offer for sale:
- Fixed Price; marketed & underwritten, priced below expected market value
- Tender; shares issued to bids above the strike price
- Subscription; bids made above min price but issuer can pull out if not all shares sold
Placing: offered directly to financial institutions
What are scrip issues and share splits?
Scrip issue:
New shares issued from reserves; simultaneous increase in shares and decrease in share price - no overall impact
Share split:
Splitting eg £1 share into 4 x 25p shares - no overall impact
Key features of ordinary shares (4)
Company must have them
Carry voting rights & right to dividend
Last to be repaid on winding up
Shareholder liability limited to any unpaid call only (if they only part paid for their shares they become a debtor)
Key features of preference shares (3)
Rank ahead of ordinary shares for dividends and capital repayment
Entitled to fixed dividends, usually lower than ordinary
No voting rights
What are the 3 types of preference shares?
Cumulative; unpaid dividends are carried forward and paid in following year ahead of ordinary divs
Participating; fixed dividend & proportion of ordinary dividend
Convertible; right to convert to ordinary shares at set price & date - lower dividend but higher price
What are warrants?
The right for the holder to receive ordinary shares at a set time and price
What are the LSE’s 2 main stock markets?
Main market; must have been trading for 3 years and shares are 25% public - strict reporting requirements
AIM; smaller companies with fewer requirements
What is the dividend yield calculation?
net dividend
_____________
share price
What is the EPS calculation?
net profit
__________
no. shares
What is the dividend cover calculation?
EPS
____________
net dividend
What is the P/E ratio calculation?
share price
____________
EPS
What is the Price Earnings to Growth ratio and what does it mean?
P/E ratio
____________________
annual EPS growth
0-1: higher growth potential (undervalued)
1: fair balance between cost & growth
>1: overvalued
What is the net asset value calculation?
net assets
___________
no. shares
What is the gearing calculation?
long-term debt*
________________
net assets
- debts >12m, pref. shares, debentures & loan stocks
What is the panel of takeovers and mergers levy
Share sales & purchases >£10k subject to £1 charge
Key features of SAYE-linked share option schemes? (5)
Employees can save £5-£500 per month for 3-5yrs
Receive tax free interest/bonus during this time
At maturity, employee has option to buy shares or withdraw cash
Strike price cannot be <80% of market price at start
Can transfer shares into ISA or pension within 90 days
Describe free shares (share incentive plan) (4)
Employees granted up to £3,600p.a in shares
Held in trust for 3-5yrs
Income tax payable if withdrawn early, unless good leaver or company event
- charged on lower of MV @ award and MV @ exit
Describe partnership shares (share incentive plan) (5)
Employees forego up to 10% salary (max £1,800)
Trust acquires partnership shares on their behalf
No income tax / NICs & employer claims deduction if held for 5yrs
Charge if withdrawn:
<3yrs; income tax & NIC @ MV of shares at exit
3-5yrs; lower of amount of salary foregone or MV of shares at exit
No charge if good leaver or company event
Describe matching shares (share incentive plan) (2)
Employer matches shares bought by employer
Held in trust for 3-5yrs
Define good leavers and company events?
Good leaver:
Death/disability
Redundancy/Retirement
Company event: e.g takeover
