Unit 1 Topic 7 - Other direct investments Flashcards
What are Securities and Dividends?
Securities
Financial assets that can be traded. They can be divided into two broad classes: those that represent ownership (equities) and those that represent debt (such as gilts and corporate bonds).
Dividend
A portion of a company’s profits that is distributed to shareholders. The level of dividend available is dependent on the profitability of the company and strategic decisions such as the need to reinvest profits to expand the business.
How are shares bought and sold?
Shares, issued by the UK and overseas companies, gilts, corporate bonds and options are all traded on the London Stock exchange.
In order to be listed on the main market companies must conform to stringent requirements of the Listing Rules laid down by the Financial Conduct Authority (FCA), acting in its capacity as the UK Listing Authority (UKLA).
For a full listing;
- the applicant company must have been trading for at least three years
- at least 25% of its issued share capital must be in the hands of the public.
Outline the primary and secondary stock market.
- The primary market is where and financial organisations can raise finance by selling securities to investors.
- Either coming to market for the first time (going public or flotation) or issuing more shares to public.
Secondary market is where investors buy and sell existing securities. It is much bigger than the primary market in terms of the number of securities traded each day.
Outline the major share indicies
FTSE 100 Index - this is an index of the top 100 companies in capitalisation terms; each company is weighted according to its market value.
FTSE 250 Index - the next (after FTSE 100) 250 companies by market capitalisation.
FTSE 350 Index - the FTSE 100 and FTSE 250 companies combined.
FTSE All-Share Index - index of around 600 shares, split into sectors. It measures price movements and shows a variety of yields and ratios as well as a total return on shares.
Define Market Capitalisation.
The market value of a company, calculated by multiplying the number of shares in issue by the share price.
What is Over-the-counter (OTC) trading?
OTC trading is not very common between individual private investors, but it is common between institutions. They trade large blocks of securities with little publicity about price paid or the company(ies) whose shares are being traded. This form of trading is sometimes called ‘dark pools’.
What is dividend cover?
This factor indicates how much of a company’s profits are paid out as dividends in a particular distribution. If, for example, 50% of the profits are paid out as dividends, the dividend is said to be covered twice.
Cover of 2.0 or more is generally considered to be acceptable by investors. Whereas below 1.0 indicates that a company is paying part of its dividend out of retained surpluses from previous years.
What is the 2019/20 dividend allowance?
£2,000.
Even if the rate falls in the basic-rate band is covered by the DA, this still uses up a portion of the basic rate band.
What is are Rights issues?
A rights issue offering is a for a company to raise capital by issuing more shares.
The shares must first be offered to existing shareholders.
Shares are generally offered at a discount to the price the news shares are expected to commence trading.
Shareholders who do not wish to take up this can sell to someone else.
What are Scrip issues?
Scrip issue, also known as bonus issue or capitalisation issue, is an issue of additional shares, free of charge, to existing shareholder.
No additional capital is raised by this action.
The effect is to increase the number of shares and to reduce the share price proportionately.
What are preference shares?
Similar to ordinary shares, pref shareholders are entitled to dividends.
The difference is they are generally paid at a fixed rate.
Holders of pref shares are eligible for any dividend payout ahead of ordinary shareholders.
Pref shares do not normally carry voting rights, although in some cases holders may acquire voting rights if their dividends have been delayed.
What are Convertible preference shares?
Convertibles are securities that carry the right to be converted at some later date to ordinary shares of the issuing company.
What are financial Warrants?
Warrants give the holder the right to buy shares at a fixed price at an agreed future date.
They give the holder rights at a fraction of the cost of the shares themselves.
At the date when the warrant can be exercised, it will be exercised if the share price is above the price at which the shares can be bought under the terms of the warrant.
What wear and tear tax allowance can be claimed on BTL properties?
Up until April 2016, landlords were able to claim an annual wear-and-tear allowance on the cost of furnishings in the property. This has been replaced by a furniture replacement relief that only allows the actual cost of replacing furnishings to be offset against profits.
What are Treasury bills?
Treasury bills are short-term redemable securities issued by the Debt Management Office (DMO) of the Treasury.
Like gilts, they are fundraising instruments used by the UK government, two major differences are:
- Treasury bills are short term normally being issued for a period of 91 days, where gilts can be long term or even undated;
- Treasury bills are zero-coupon securities, ie they do not pay interest. Instead, they are issued at a discount to their face value or par value.
