Ratios

Question 1

What does the information ratio demonstrate?

Answer 1

• Compare against sector/benchmark.
• Assess risk adjusted returns.
• Out performance/added value/alpha.
• Consistency of the manager.

Question 2

Shares issued: 25m
Warrants issued: 750k
Share price: 280p
Warrant subscription price: 160p
Total capital employed: £95m
Long term debt: £43m

What is the undiluted and diluted NAV per share?

Answer 2

Undiluted:
95m-43m=52m
52m/25m=£2.08

Diluted:
52m+(750k x 1.6)=53.2m
53.2m/(25m+750k)=£2.07

Question 3

Shares issued: 25m
Warrants issued: 750k
Share price: 280p
Warrant subscription price: 160p
Total capital employed: £95m
Long term debt: £43m

What is the gearing ratio?

Answer 3

95-43=52
43/52=82.69%

Question 4

What are the distinct purposes of alpha, information ratio & sharpe ratio?

Answer 4

Alpha:
- Value added by manager
- Excess return not explained by beta

Info ratio
- Consistency of manager
- Excess return over benchmark

Sharpe ratio
- Excess return above risk-free rate
- Excess return over standard deviation