Chapter 4: IMC
0.0 / 5
- Created by: gracerileyx
- Created on: 02-03-21 17:45
Authorised share capital
maximum number of shares a company is permitted to issue
1 of 26
Issued share capital
the number of shares the company has allotted to shareholders
2 of 26
Ordinary shares or 'common shares'
Have right to vote and right to a dividend after preference shares. Ordinary shares have the right to a surplus on winding up
3 of 26
Deferred share
special type of ordinary share where one or all rights are deferred. Worthless during deferral period.
4 of 26
Types of preference share
1) Cumulative preference share: should company not pay dividend, rolled over to next period.
2)Participating pref share: additional divs may be paid over and above fixed rate should the company be particularly profitable.
3) Convertible pref share: can co
2)Participating pref share: additional divs may be paid over and above fixed rate should the company be particularly profitable.
3) Convertible pref share: can co
5 of 26
American Depositary Reciepts
Represents the shares in a non-US company denominated in US dollars
6 of 26
Global Depositary Reciepts
Similar to ADRs but deposited and issued by non-American banks and in a currency other than US dollars and traded on non-US exchanges.
7 of 26
Tax credit on dividends
dividends are quoted and paid net of a 10% tax credit, so have already paid 10% income tax at source
8 of 26
Dividend signalling theory
Rise in dividend payment is a positive signal, lowered is a negative signal
9 of 26
Stable dividend policy
attract pension funds and income seeking investors by offering a constant level of dividend. Can use dividend cover ratio to see if div income is stable.
10 of 26
Uncovered dividend
Company distributes dividends greater than the current earnings per share by using previous years earnings. This is clearly not sustainable, signals that although times are tight they will get better.
11 of 26
Total holding period return formula
(end val - start val) + dividends received / Start val
12 of 26
Preference share valuation formula
Price = Dividend / r
13 of 26
Gordon's growth model
Do (1+g) /( r - g)
Do - most recent dividend
r - investors rate of return
g - growth rate
Do - most recent dividend
r - investors rate of return
g - growth rate
14 of 26
Limitations to Gordons Growth Model
1) purely quantitative model so does not take into consideration company or industry trends.
2) Assumes constant growth
2) Assumes constant growth
15 of 26
Rearrange Gordons growth model for the constant growth rate
g = (price x r) - Do / (Price + Do)
16 of 26
Using retention ratio to calculate growth rate
g = retention ratio x return on equity
17 of 26
retention ratio formula
(net income - dividends)/ net income
18 of 26
Warrants
Securities issued by a company that give the owner the right to subscribe for new shares in the company at a fixed price on a future date. Typically offered as a sweetener to other investments. Risky investment
Warrant Value = Formula Value + Premium Val
Warrant Value = Formula Value + Premium Val
19 of 26
Formula Value or 'intrinsic value'
the profit 'built in' to the warrant (if any). e.g. if the warrant has an exercise price of 2 and the current share price is £2.50, the formula value will be 50p. Can only be positive or nil.
20 of 26
Premium value or 'time value'
warrant price - formula value
21 of 26
Percent premium of warrant
warrant price - formula value / (no of shares created x current share price)
22 of 26
Pricing a warrant
WP = Prem / (1+%new) x size
%new - percentage increase in number of shares when the warrant is exercised
size - number of new shares created by the warrant
%new - percentage increase in number of shares when the warrant is exercised
size - number of new shares created by the warrant
23 of 26
Differences between call options and warrants
1) warrant is a security giving the holder the right to buy new shares, whilst call option is the right to buy existing shares in the secondary market
2) Warrants life is in years whilst an options tends to be in months
3) Seller of option is always respo
2) Warrants life is in years whilst an options tends to be in months
3) Seller of option is always respo
24 of 26
Covered warrants
warrants in a company's shares issued by an organisation other than the company itself. Usually issued in diff currency than underlying shares.
25 of 26
Covered warrants European style / American style
European- expiry only
American - any day up to and including expiry
American - any day up to and including expiry
26 of 26
Other cards in this set
Card 2
Front
the number of shares the company has allotted to shareholders
Back
Issued share capital
Card 3
Front
Have right to vote and right to a dividend after preference shares. Ordinary shares have the right to a surplus on winding up
Back
Card 4
Front
special type of ordinary share where one or all rights are deferred. Worthless during deferral period.
Back
Card 5
Front
1) Cumulative preference share: should company not pay dividend, rolled over to next period.
2)Participating pref share: additional divs may be paid over and above fixed rate should the company be particularly profitable.
3) Convertible pref share: can co
2)Participating pref share: additional divs may be paid over and above fixed rate should the company be particularly profitable.
3) Convertible pref share: can co
Back
Related discussions on The Student Room
- School won’t enter student for UKMT maths challenge »
- Westminster 16+ help 2025 entry »
- should i contact bath about my mitigating cirumstances form? »
- GCSE Maths-In Year 9? »
- Am I good enough for A Level Further Maths? »
- Target 2030 »
- ✎Starting Early: GYG Study Blog of Y9 Student📖 »
- Intermediate UKMT »
- BMO Prep »
- Ukmt smc 2024 »
Similar Business Studies & Economics resources:
0.0 / 5
0.0 / 5
0.0 / 5
0.0 / 5
0.0 / 5
0.0 / 5
0.0 / 5
0.0 / 5
0.0 / 5
0.0 / 5
Comments
No comments have yet been made