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
limitation of ratios
- 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
indicies
- bring together the movements if individual shares and show direction of a market over time
27
total return vs capital only indices
- indices 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 if income received but not compounded ie invested
28
limitations of indicies
- 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
types
- 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
indicies - examples
- oversees
- nasdaq
- uk gulf all stock
- investment grade bond
31
stamp duty land tax
- property in england and northern island
-must complete SDLT forms submit them to HMRC and pay within two weeks.
- if it's over £650,00.00 can not claim
first time buyers relief
- before £300,000.00 no tax payable for first time buyers.
- there is an additional 5% on additional properties over £40,000.00. Will not be paid if it's to change house and the property has already been sold.
- residential dwellings for company is 15% if more than £500,000.00
-won't pay on a second one that is being sold to replace a main residence
- 2% supplementary fee on non uk resident
32
leasing land or premises
- 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
scotland lane and buildings tax
- 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
wales
- 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
rent a room
- excempt from tax as long as there is only one and it is self contained and they are below £7,500.00.
- if it's more they can deduct expenses and not have an allowance and pay tax
- if another individual is also receiving rent from letting the accommodation in the same property the relief is £3,750.00
- they rent takes into a lou t rent and other services is laundry
- can also get relief for renting out if it's under £1,000.00
36
commercial property
- 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
problems with investing in commercial property
- 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 £250,000.01is 5%
38
alternative investments
- 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
commodities
- 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
crypto
- 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
42
FTsE Russell
- these are all arithmetic weighted using market capitalisation rather than share price. So total number of shares issued by market price.
43
FTSE and free float
- FTSE constituent weightings are add judges to reflect free float share. If more than 25% are not freely available then reduced. This reflects availability of shares
- price index is sum of all capitalisation within market
44
main FTSE indicies
- FTsE all share index - tracks the FTse 100 , FTsE250 and FTsEsmall cap over 500 companies. All that pass screening fir size and liquidity. It is performance of all eligible companies and is often used as the basis for index tracking funds
FTsE100 - best know and tracks value of top 100. Movements of companies in and out had big impact on share value as lots of trackers trackit. Represents 80% of total market capitalisation of all shares listed and is used extensively as a basis for investment products such as derivatives ETFs and a performance benchmark
-FTse 250 next 250 companies reviewed quarterly
- FTsE350 is combination reviewed quarterly
-FTsEsmall cap - too small to qualify for FTsE350
-FTsE fledgling - they are companies elidgsble for FTsEbut too small for FTsEall share
FTse AIM index - companies that have not been in the business long enough to be traded on AIM
FTsEAIM all share supersector indices - these are derived from FTSE AIM All Share a Index and are based on industry Classification Benchmark. They provide an investor with 20 indices ruth which to identify macroeconomic investment opportunity
- all must be liquid
- liquidity measured annually
- constituent reviewed quarterly September
45
Oversees
- Dow Jones - 30 blue chip companies.Uses new york closing price and and averages them. Three specialist indices are also provided for utilities transport and home bonds
- S&P - 500 companies stocks weighted with capitalisation
- NASDAQ for smell young companies which operate in fast growing sectors such as IT and Biotechnology. It is user fir the performance of US technology stocks
- Nikkei - not an index and is average of 225 stocks. It is not weighted on capitalisation so smaller firms can move it.
-Tokyo - better guide for total
- DAX40 - german it includes reinvested incone and is used for trackers
- Habg Seng Index - designed to serve as an indicator of the broad movements in Hong Kong Stock Market.
- CAC 40 - real time weighted abd one if largest on the Euronext Paris
- MSCI World - this is another widely used oversees index
-FTSE All-Workd Index - covers global equity markets and compromises over 4,000.00 stocks from 49 countries
46
residential property
- tenure no minimum period usually 6 months initially. Not subject to rent controls long term tenancies depreciate prices
- expected yield rent
------------------------- x100
market price
47
non voting shares
- still vote in general
- have the same dividends
- carry higher risk then normal
- have restricted
48
leasing land tax
- rent x tenancy
- this gives amount then take of the allowance
- over 250,000.00 it's 1% if on amount over up to £1 million. it's called Net present val. 2% thereafter on commercial
