equities Flashcards
1
Q
dealing shares
A
- must list in the london stock exchange
- when listing the united kingdom’s just authority is the authoriser
- AIM is for smaller - they are not ‘listed’
2
Q
AIM
A
- smaller companies
- not classed as listed
- less expensive
-described as quoted
3
Q
stamp duty and stamp duty reserve tax
A
-stamp duty is paid when shares are purchased using stock transfer form is the transaction is over £10,00.00
- SDTR is paid when shares are bought electronically through CREST. The £1,000.00 threshold doesn’t apply
- stamp duty and sdtr are 0.5%
- paid buy purchaser
- stamp duty is rounded up to the next multiple of £5
- SDTR - is rounded to the nearest penny
- all trades over £1,000.00 pay a PTM levy
4
Q
preference shares
A
- usually pay fixed rate dividend every half year
- only paid when enough after tax profits
- interest stick loan must be paid if company has made a profit or not
- has preference on payment ahead of other shareholders but not never creditor
- can’t vote in voting rights
- since the security is preference shares is lower than due bonds their yields are higher to compensate for the risks involved
5
Q
different types of preference share
A
- convertible preference - rights to convert to ordinary shares . prices respond to both the fixed and convertible payment.
- redeemable preference shares - they represent a temporary source of finance for company. Dividends are paid to the shareholder fir a short period and the share will then be repaid.
- participating preference shares - participating preference charges pay a fixed rate and allow the holder to participate in the profits of a company
- non fumarole preference shares - no rollover
- curative preference shares - unless specifically stated otherwise preference shares are cumulative. If there is insufficient funds to pay then this is rolled over. the next years dividend is still paid to cumulative preference shares for their historic ones before others. The dues must be paid before any new dividends paid
6
Q
ordinary shares
A
- should get dividends after profits but if the company goes bust the preferential and creditors get paid some value
they usually get to vote
holders of ordinary bear must rush so should get rewarded
7
Q
other types of ordinary shares
A
- alphabet shares - ordinary shares divided into classes the articles of association confirm the different classes
- deferred ordinary shares - don’t get paid dividends until an amount of time or hit a pre determined level
- non voting ordinary shares - these are the same. They don’t allow votes to keep decision making in the hands of the ones who sold it. Allows the company to benefit from investment.
8
Q
dividend tax
A
- on an amount over the limit which is 500
- basic rate 8.75%
- higher rate 33.75%
- additional rate 39.35%
9
Q
Equity capital risk
A
- price depends on demand and supply
- investors use past performance immediate and potential future to assess price
- poor performance can be management or technological failure , geopolitical events and fashion ie whats trendy whats not
10
Q
currency
A
- Any investment denominated in other currency is subject to currency risk
- investors usually measure in their own currency
- investing outside the UK involved the ridj the currency will fluctuate in relation to sterling
- individual who uses two currencies might find its better to hold two currency amounts
11
Q
equity risk Fund manager and insurance
A
- the structures and legislation should reduce risk such as compensation scheme
12
Q
equity risk
A
Share dividend volatility
- dividends from shares can fluctuate as companies enter their payouts to shareholders
- in 2019 many companies set to suspend dividend pay outs
13
Q
equity risk
A
Liquidity risk - some shares are difficult to sell.
- property funds can be difficult
14
Q
Counter party risk
A
- the risk that the organisation with which an investment is placed will fail
- counter-party risk is difficult to judge
15
Q
equity diversification
A
- individual shares - investing in lots of different companies
- sector diversity - going into lots of different ones not just finance ones
- international markets - this allows more investment in international equity markets ie if a UK investor wants invest in a market not available ( production of pharmaceutical in india e.g)
16
Q
residential property
A
- was attractive when capital went up
- the government changed the tax rather by adding 3% fee on second properties.
- income tax relief changed
- ## capital gains taxes reduced from 28% to 24% to encourage sales of property.
17
Q
drawbacks of property investment
A
- liquidity - property is expensive to buy and sell with increased rates of SDLT for second
- can’t split it up
- Have to run it like a business management wise
- there could be times where tenants can’t be found
- legal services are expensive especially in sort after areas
18
Q
property things to consider
A
- location , tenants, age of property and diversifying the property.
- tenure they will tend to go for short term so they can increase price and are not subject to rental controls
- prospect for coalition growth - goes up with earnings
- rentals yields vary. Managing the property will reduce the yield by 25%
19
Q
private equity
A
- they take over companies
- private equity funds seek to raise money for pension companies
- the funds will typically look to retain the investment and then invest for between three 7 years. they are often structured limited for the 7 years
- can do directly in unlisted ones or can invest in a listed private equity investment company. They are often a collective investment established as closed ended vicle so ISAS hold them.
- can invest in funds that invest in unlisted companies.
- shown to be more beneficial but it’s risky.
- less liquid , transaction costs are higher shares often in a few people.
20
Q
earnings per share
A
- ## profit attributed to ordinary share holdersnumber of ordinary shares in use
- profit after tax
- confirms the profit for distribution to share holders
21
Q
dividend yield
A
share price
dividend yield measures the discern as a percentage return in current shares. it allows an investor to compare the current return on a share with the return that could be obtained from bonds or alter
- this needs to consider the companies dividend policy ie to companies reserve a lot. If share price slumps it will look better but the share price dropped.
22
Q
cover
A
dividend per share
or
Dividends paid to ordinary share holders
Confirms how many times dividend could be paid out if available current earning. Confirms riskiness if investment and margin of safety the company has in paying dividend. Dividend cover is calculated as per
23
Q
price earning ratio
A
earnings per share
- how highly investors value the earnings of a company. Viewed as a reflection of markets optimism or pessimism about the potential for future growth in earning
- should only be used for companies in exact same sector
- if the P/E is higher than it is expected that the share price would be higher
- it could be overpriced so not guaranteed
24
Q
net asset value
A
- ## net assets attributable to ordinary shareholdersnumber of ordinary shares in issue
the net assets attributable to the ordinary shareholders is calculated as the total capital in business - prior claims. it’s the minimum value a share is worth.
- nominal value of shares used and most are £1
- unlikely the assets signs realise their balance sheet if company liquidated
- less useful for companies valued on earnings potential
25
Q
limitation of ratios
A
- highlight aspects of companies require scrutiny
- different accounting methods can be used and new owners may change the goals
- high inflation could still affect it
26
Q
indicies
A
- bring together the movements if individual shares and show direction of a market over time
27
Q
total return vs capital only
A
- undivided cab be constructed as total return or capital only. The FTSE is both. The capital only indices reflect only price changes. They are only relevant for performance measurement jd income received bt a fund is distributed and not included in the fund performance
28
Q
limitations of indicies
A
- used comparing performance
-weighted indicies are better than market weighted as they don’t rely upon data from a few large companies - weighted index use company’s revenues earnings and number of people not just price.
- if they only measure capital it is ignoring reinvested dividend income which can make a substantial difference to long term performance.
- don’t include cost of selling and capital gains tax
29
Q
types
A
- FTSE Russell - subsidiary of LSE provides stock and data. Contains 1,200 indicies.
_ all of arthimitcakky weighted where they are not just based on market price.
- price movements of large companies ir a big percentage even 5% will have a big affect
FTSE contingent weightings are adjusted to reflect the free float of shares for each one.
companies with less than 75% shares available are reduced. This is because situations where only a limited quantity of stock available for public trading because directors or a subsidiary company own then
30
Q
indicies - examples
A
- oversees
- nasdaq
- uk gulf all stock
- investment grade bond
31
Q
stamp duty land tax
A
- paid by buyer within 2 weeks
- SDLst rate is 3% on additional properties
- other rates are on the tax table
- won’t pay on a second one that is being sold to replace a main residence
- 2% fir those who are non resident
- SDLT is paid at 15% on residential dwellings costing more than £500,000.00 bought by dinosaurs and collective investment schemes.
32
Q
leasing land or premises
A
- SDLT is charged in the net present rent payable.
- need to times rent by 12 apply a discount and check against threshold.
- below £250,000.00 residential then it is no fee. above is 1% Above £5million is 2%. commercial is £150,000.00
33
Q
scotland lane and buildings tax
A
- land and buildings tax applies to residential and comercial.
-£170,000.00 threshold with 6% additional on top of normal rates for additional properties.
34
Q
wales
A
- Wakes has additional taxes with 0 up to £225,000.00 and 4 after. Any additional there is 4% on top of £180,000.00
35
Q
rent a room
A
- excempt from tax as long as there is only one and it is self contained and they are below £7,500.00.
36
Q
commercial property
A
- retail
- retail has the least profit
- comercial js usually 25 years and all costs are past on to tenant for maintaining.
- past performance can’t be relied on but shows investment cycles.
- generally has clauses to increase.
- they diversify by skrwadjbg types.
- direct is for wealthy due to the amount it’s costs.
- investors can invest in collective funds such as real estate investment trust
37
Q
problems with investing in commercial property
A
- there can be a time lad in increasing supply of property to meet demand which results in over supply.
- difficult to analyse
- can usually only be sold as a whole can’t be half in
- rent reviews take place after 3-5 years can only increase then
- sale and purchase is slow and complex. add around 6% fees m. SDLT on £250,000.00 is 5% 1% over 150
38
Q
alternative investments
A
- can be funds that invest in agriculture, infrastructure and alternative energy.
- physical art is driven by taste which can be controlled buy a few buyers.
- timed right can be very lucrative.
- the value is dependant on limited supply and fluctuating demand. The
- brokers have fees if 50%.
- brokers influence taste
- some people may like the items anyway and not be bothered about money.
- don’t tend to generate income but can cost.
- relies on knowledge
39
Q
commodities
A
- hard commodities are mined goods
- agricultural goods are soft
- commodity prices don’t move along with equities and bonds they are separate.
- good diversification.
- volatility is that certain commodities can drop and be subject to demand ie crisis or new extractions
- can either buy commodity , invest in a company that produces them, invest in a fund, invest in exchange traded commodity.
- gold is often seen as a safe heaven and is not linked to economy
40
Q
crypto
A
- they are not regulated
- they are not backed by central government
- they are anonymous
- only keys can be used
- people who make it get paid a fee
- it’s considered a money laundering dave heaven
41
Q
A
