OTHER DIRECT INVESTMENTS Flashcards
What are shares? (Also known as equities)
Ordinary shares are the most imp type of security that UK companies issue.
Bought by pvt investors as well as institutions and life and pension funds.
What rights do holders of shares have?
1) Receive a share of distributed profits of the company in
the form of dividends
2) By voting in shareholders’ meetings, can participate in decisions about how company is run
How are share performances assessed?
1) Earnings per share - post tax net profit / no of shares
2) Dividend cover - how much of co’s profits are paid
out as dividends in a particular
distribution e g 50% profit distri as
dividends has dividend cover of 2
3) Price/earnings ratio - share price divided by
earnings per share (preferably
higher within companies of similar
sector)
What measures are taken by govt to make BTL less attractive to investors?
- Tax relief from mortg interest limited to tax credit at basic rate tax only in 20-21 tax year
- No more wear and tear allowance but only furniture replacement relief which offsets the cost of replacing furnishing to offset profits
- second properties are subject to 3% stamp duty land tax surcharge
What are treasury bills?
short term redeemable securities issued by Treasury
- usually for 91 days - no interest paid, but can be purchased at below par value
Features of Treasury bills ( T bills)
Short term, zero coupon, low-risk (as govt backed and very short term), can be bought and sold at mainly secondary mkt, value mainly rises during 91 day period
Significant int changes may affect value, also affected by supply and demand
Usually bought by finl. institutions as short term investment from surplus cash
What are Certificates of Deposit
Just a receipt from banks or bldg soc. to confirm large deposits with the institution for a specified period at a fixed int rate. Typically 3 -6 mths
Bearer securities and holder can sell if they need cash.
What is commercial paper?
Issued by businesses needing short term cash typically upto 45 days, can roll over the term again, usually to cover running costs than for long term plans.
For very large amounts and held by institutions, and pension funds, insu companies etc.
Factors that can affect share price
Profitability of company
Performance of that particular sector
Strength of economy (UK and global)
Supply and demand of shares
What happens if you buy ex-dividend share?
You may not be paid the next dividend at next distribution as it will be paid to seller.
Difference betn rights issue and scrip issue
Rights issue is when extra shares are offered to existing shareholders at a reduced price whereas scrip issue is when shares are offered free to dilute the share price by increasing the no of shares. No extra funds are raised.
BTL property drawbacks
Property is not a liquid asset
Expenditure on maintenance, eviction(if needed)
finding tenants
Periods of no income during recession, or period between tenants
Property should be well located to attract tenants
