Ratios Flashcards
What does the information ratio demonstrate?
- Compare against sector/benchmark.
- Assess risk adjusted returns.
- Out performance/added value/alpha.
- Consistency of the manager.
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?
Undiluted:
95m-43m=52m
52m/25m=£2.08
Diluted:
52m+(750k x 1.6)=53.2m
53.2m/(25m+750k)=£2.07
Shares issued: 25m
Warrants issued: 750k
Share price: 280p
Warrant subscription price: 160p
Total capital employed: £105m
Long term debt: £34m
What is the gearing ratio?
105-34=71
34/71=47.89%
What are the distinct purposes of alpha, information ratio & sharpe ratio?
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
What are the drawbacks of the Sharpe ratio?
- Assumes standard deviation as appropriate measure of risk
- Returns may not be normally distributed
- Easy to manipulate by adjusting the measurement period
- Historic data
- Ignores certain costs and charges
How do you calculate capital employed?
Total assets - current liabilities
How do you calculate return on capital employed?
Operating profit / capital employed
How do you calculate the working capital ratio?
Current assets / current liabilities
How do you calculate the gearing ratio?
(Long term loans + preference shares) / (Total equity - preference shares)
