Equities

Question 1

Explain and calculate enterprise value

Answer 1

Enterprise value (market value of a firm’s equity and debt less the firm’s cash and short-term securities investments) can be interpreted as the amount that would be needed to acquire a firm.

Question 2

Explain GDR and ADR

Answer 2

Global depository receipts (GDRs) are typically denominated in U.S. dollars. GDRs are not listed on United States securities exchanges. GDRs may be sponsored by the issuing firm or unsponsored and issued by the depository bank.

Depository receipts that trade in the United States are called American depositary receipts (ADRs).

Question 3

What are participating, convertible and cumulative preference shares?

Answer 3

Participating preference shares pay extra dividends if the firm’s profits exceed a predetermined level.

Convertible preference shares may be exchanged for the firm’s common shares at a predetermined ratio.

Cumulative preferred shares must be paid any omitted dividends from prior periods before the firm may pay dividends to common shareholders.