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F3 > Section A > Flashcards

Section A Flashcards

1
Q

What is the formula for teh Annual Return to Investors and explain

A

(Pi - Po) + Dividends

—————-

Po

Shows the capital gain for the year, plus any dividends. Highlights that S/H wealth can be gained without dividends

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2
Q

What is RoA and explain

A

Annual Profits

Avg. Net Assets

Its considers profit and therefore can be manipulated with accounting policies. It also ignores Time Value of Money

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3
Q

Explain the 3 E’s in Public Sector VFM + the 4th E

A

Economy - Spend Less

Efficiency - Spend Well

Effectiveness - Spend Wisely

Equity - Spend Fairly (resources available to all)

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4
Q

What is ROCE Formula and explain

A

Operating Profit (PBIT)

—————

Cap Employed

CE = S/h Funds + LTD Debt

Shows the return generated from resources available.

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5
Q

What is ROE and explain

A

PAT

——

Equity

Only difference is Financing costs. The amount of return that related to S/H

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6
Q

When looking at Gearing. What values can be considered under Debt & Equity for Book Value calculations

A

Debt - LTD + Redeemable Preference Shares

Equity = Share Cap, Share Prem, Reserves & Irredeemable Preference Shares

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7
Q

What is Debt Ratio calculation and explain

A

Total LTD

_____

Total Assets

Availability of assets in relation to debt

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8
Q

What is meant by Ex-Div and Cum-Div

A

Ex-Div price is the share price and the investor will not be included in the next dividend payment

Cum-Div price is the share price and the investor will particpate in the next dividend.

Therefore:

Ex Div = Cum Div - DPS

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9
Q

Explain the relationship between Payout Ratio and P/e Ratio

A

A entity with a high P/e ratio will tend to have a low PO Ratio and the funds will be need to be reinvested for growth.

Therefore, generally:

High P/e - Low PO

Low P/e - High PO

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10
Q

What does Dividend Cover represent

A

EPS

___

DPS

A High Div Cover says that the business retains profits for reinvestment by considering how many times Div can be covered by this years Earnings

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11
Q

What are some of the effects of changes in Interest Rates increase

A
  • Assests Fall
  • Spending Falls
  • Inflation Falls
  • FX Rises
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12
Q

Explain relationship of P/e Ratio and EY

A

They are recipricol of each other. Therefore,

High P/e Ratio = Low EY

Low P/e Ratio - High EY

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13
Q

Explain the relationship between Div PO Ratio and Div Yield

A

Div Payout / Div Yield = P/e ratio

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14
Q

Explain teh relationship between Asset T/o, Profit Margin and ROCE

A

A T/o x OPM = ROCE

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15
Q

FS provide historica data.

What other 4 things can the integrated reporting help with

A
  1. How the business is managed
  2. Its future prospects
  3. Policy on enviornment
  4. Attitude towards social responsibilty
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16
Q

What does GRI & IIRC help with?

A

GRI - further disclosuers are needed re Sustainability rather than just the standard. In particular about Econmic, Environment & Social performance indicators

IIRC - Looks at Integrated Reporting and fundemental change to the way entity is managed and report to stakeholders

17
Q

Where would you expect to find the GRI extra disclosuers

A

The can be found in a seperate

  • Environmental/Sustainability Report
  • MGMT commentary
  • CSR
  • Use GRI as guidlines for the format
18
Q

GRI Sustainability Reporting has 2 options for disclosures. Core and Comprehensive. Explain both

A

Core looks at Economic, Environmental, Social and Governance Performance

Comprehensive looks more extensive reporting of Strategy and Analysis, Governance, Ethics and Integrity

19
Q

For GRI reporting what are the principles for reporting Content:

A
  • Materiality
  • Stakeholder Inclusivness
  • Sustainability Context
  • Completeness
20
Q

For GRI reporting what are the principles for reporting Quality: (BARTCC)

A
  • Balance
  • Comparability
  • Clarity
  • Accuracy
  • Relaibility
  • Timley
21
Q

For GRI there are 2 different types of Standard Disclosures. What are they and what do they consist of?

(GROSSME) Genera

A

General STD

  • Governance
  • Report Profile
  • Org Profile
  • Stakeholder engagement
  • Strategy and Analysis
  • Ethics and Integrity
  • Material Aspects and Boundaries

Specific STD

  • Indicators
  • MGMT approach
22
Q

The Indicators are then further split into 3 categories, Economic, Environmental and Social with Social being further sub divided into 4 categories. What are they?

A
  1. Labour Practices and decent work
  2. Human rights
  3. Society
  4. Product responsibility
23
Q

Give examples of types of disclosures under the Econmic, Environment and Social (and then further 4 sub categories)

A

Economic

  • Revenues/Costs/Pension Cont/Taxes Paid

Enviormental

  • Ommissions/Fuel/Energy

Social - Labour Practices

  • Staff T/o - Benefits provided to staff/Training

Social - Human Rights

  • Measures taken to support right to exercise freedom of association

Social - Society

  • Ops with local community/Donations to political Parties

Social - Product responsibilty

  • Complaints about privacy issues/Breaches of H&S
24
Q

What is the mission of the IIRC

A

To have a globally accepted framework for communication of how value is created over time

25
Q

What are the 6 Categories of Capital under IR

A
  1. Financial
  2. Manufactured
  3. Intellectual Capital
  4. Human
  5. Social and Relationship
  6. Natural
26
Q

In the Preperation of the IR there are 7 guiding principles:

These underpin the preperation on IR

A
  • Strategic focus and future orientation
  • Stakeholder Relationship
  • Connectivity of info
  • (hollistic view and interrelated)
  • Consistency and comparbility
  • Concise
  • Completness and Reliability
  • Materiality
27
Q

What are the 8 content elements required to be included in IR Framework (PROBBOGS)

A
  1. Org overview and External Enviorment
  2. Governance
  3. Business Model
  4. Risk and Oppurtunites
  5. Strategy and resource allocation
  6. Performance
  7. Outlook
  8. Basis of preperation and presentation
28
Q

What are the 4 principles when applying MGMT commentary

A
  1. Compliment FS
  2. MGMT view of performance and progress
  3. Future focused
  4. Possess qualitative characteristics of relevance
29
Q

Upon a rights issue what happens to Shareholder wealth initially and then once the project return a positive NPV

A

Initally - No change to S/h wealth as they will have more share holding (even though share price (TERP) will fall)

Positive NPV - Share holder wealth will increase if the money is used for a positive NPV project

30
Q

When looking at credit rating explain the Grade and Risk for S&P and Moody

A

AAA (Aaa) Investment Garde & Lowest Risk

AA, Aa, A, BBB, Baa - All investment and Low risk (BBB & Baa is Medium Risk

All else is Junk and High risk

31
Q

What External Influences/considerations should be considered on financial strategy

A
  • Any debt covenants
  • Gearing - getting a balance of debt to attract Tax relief but not too much to worry investors
  • Ability to get finance - liquidity/creditworthiness
  • Government influences
  • Regulatory bodies
  • Economic influences - INF, IR, FX
32
Q

What 4 ways can a government influence business activity

A
  1. Tax - Higher taxes on profitable companies
  2. Regional Policy - Make funds available to areas of low employment and poverty
  3. Employment Policy - Training programmes and funding employment programmes
  4. Legislation - How business should be conducted
33
Q

When raising new debt finance how do you calculate new share price?

Current SP = £2.70

Current Ordinary Shares = 16m

NPV of new project = £8m

A

New Share Price = 2.70 + (£8m / 16m) = £3.20

34
Q

Calculate TERP and New Share Price with NPV project

Current SP = £2.70

RI = 1:2 (@£2.5)

Shares = 16m

NPV = + £8m

A

TERP

2 x 2.70 = £5.40

1 x 2.50 = £2.50

((2 x 2.70) + 2.50) / (2+1) = £2.63

New Shre price

£2.63 + (£8 / (24m) = £2.96

35
Q

By reducing the level of dividend what impact could it have on investor ratios?

A

Reducing Div outflow could allow entity to invest in + NPV project and therefore increase profits and growth

EPS will rise

Share price may rise with increased profits and growth prospects

Interest Cover could rise

F3 (7 decks)

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