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
What are the 6 Categories of Capital under IR
1. Financial 2. Manufactured 3. Intellectual Capital 4. Human 5. Social and Relationship 6. Natural
26
In the Preperation of the IR there are 7 guiding principles: These underpin the preperation on IR
* Strategic focus and future orientation * Stakeholder Relationship * Connectivity of info * (hollistic view and interrelated) * Consistency and comparbility * Concise * Completness and Reliability * Materiality
27
What are the 8 content elements required to be included in IR Framework (PROBBOGS)
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
What are the 4 principles when applying MGMT commentary
1. Compliment FS 2. MGMT view of performance and progress 3. Future focused 4. Possess qualitative characteristics of relevance
29
Upon a rights issue what happens to Shareholder wealth initially and then once the project return a positive NPV
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
When looking at credit rating explain the Grade and Risk for S&P and Moody
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
What External Influences/considerations should be considered on financial strategy
* 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
What 4 ways can a government influence business activity
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
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
New Share Price = 2.70 + (£8m / 16m) = £3.20
34
Calculate TERP and New Share Price with NPV project Current SP = £2.70 RI = 1:2 (@£2.5) Shares = 16m NPV = + £8m
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
By reducing the level of dividend what impact could it have on investor ratios?
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