Equity Flashcards
How are ordinary share issued?
With limited liability and represent the risk capital of the firm
What does ownership of ordinary shares constitute?
Part ownership of the firm and represents a claim in some portion of the firms profits paid in dividends
What are characteristics of preference shares?
Issued with dividend attached as a percentage of the face value of the share.
What are ADRs?
Certificate of beneficial interest in a non-US company traded in USA as a way for US investors to easily invest in overseas companies.
What is a primary issuance?
Involves company listing on stock exchange for the first time.
What is secondary issuance?
When a firm that is already listed seeks to raise more capital.
What are the type of equity issuances?
Includes placing, accelerated book build, introduction, offer for sale and equity crowdfunding.
What is a scrip issue?
Creates new shares which are issued free of charge to existing shareholders in proportion to their existing shareholding.
What is a buyback?
When a company buys shares from existing shareholders in the open market or via tender offer.
What is the holding period return made up of?
Capital gains and dividends.
What is used in stock cover analysis?
Dividend yield and dividend cover.
What is dividend yield gross of tax?
Most recent annual dividend divided by current share price.
What is Dividend payout ratio?
Inverse of dividend cover is proportion of earnings belonging to shareholders which a firm distributes to them
How can we estimate the growth rate for dividends?
Using historic data or using return on equity and retained earnings ratio.
What is Gordon’s growth model?
Dividend discount models expresses the present value of a share as a function of the next dividend to be paid, growth rate of dividends and the required return.
Do we distinguish between models?
Between relative valuation models and absolute valuation models and between historic and prospective measures of value.
What is a key valuation metric?
Earnings per share which is current earnings dividend by number of shares. Inverse of PE ratio
What PE ratios are distinguished when valuing companies?
Historic and prospective.
What ratios used when valuing companies?
Price to earnings, price to book, price to sales, price to cash flow, enterprise value to earnings pre interest, tax, depreciation and amortisation (EBITDA)
What is alternative approach to valuation?
The present value of free cash flows which are the cash flows available for distribution to owners of sécurités including equity, debt and prefs.
What is gearing?
Level of company’s debt relative to its equity capital. It usually %. Measure of company’s financial leverage and shows extent to which operations are funded by lenders vs shareholders.
How to gearing ratios vary?
According to size, history and sectors of companies.
