CIMA Lecture 3&4, 1.4-1.6

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  • Created by: JoeSymons
  • Created on: 21-12-19 19:38
1.4 Concept of Shareholder Wealth - What does a Shareholder gain for investing?
1. In return for their investment they expect a return(!) and a vote on how the company is run 2. To increase the wealth of shareholders and offer a rate of return higher than what they expect aka cost of capital
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1.5 Short Run Measures of Shareholder Investment Returns - What is ROCE?
Return on Capital Employed - Measure that links profit before any finance costs to the capital (equity and debt) that has been used to generate profits, gives efficiency.
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1.5 Short Run Measures of Shareholder Investment Returns - How is ROCE Worked out
ROCE = Profit from Generations (Profit before interest and tax) / Total Assets - Current Liabilities (TALCL) (Capital employed is the same as long term debt + equity)
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1.5 Short Run Measures of Shareholder Investment Returns - What is EPS?
Earnings Per Share. Used to monitor short term performance of listed companies. Emphasis placed on increasing EPS year on year
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1.5 Short Run Measures of Shareholder Investment Returns - How is EPS worked out
EPS= Profit Available for ordinary Shareholders ( Profit after Tax and Preference Dividends) / Number of equity shares in issue
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1.5 Short Run Measures of Shareholder Investment Returns - What are issues with ROCE and EPS?
They are only reporting historical performance.
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1.5 Short Run Measures of Shareholder Investment Returns - What is P/E?
Price to Earnings Ratio. Gives guide to what market perceives of future growth potential of the company. As P/E rises investor confidence gets higher.
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1.5 Short Run Measures of Shareholder Investment Returns - How is P/E Worked out?
P/E = Share Price/EPS
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1.6 Long Run Measures of Shareholder Investment Returns - What is NPV?
Net Present Value. Widely Accepted method at valuing any investment.
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1.6 Long Run Measures of Shareholder Investment Returns - What calculations do you need to work out NPV?
1. A Future Cash Flow 2. An Annuity 3. A Perpetuity (a perpetual annuity)
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1.6 Long Run Measures of Shareholder Investment Returns - What is a Free Cash Flow?
Represents a crude estimate of the after tax cash flow available the finance providers (i.e debt and equity providers).
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1.6 Long Run Measures of Shareholder Investment Returns - How is FCF worked out?
Crude estimate by adjusting the profit figure for the following: FCFF (available to all equity & debt providers) = PBIT+Depreciation-Tax-CAPEX . FCFE (available to shareholders) = PBIT+Depreciation-Interest-Tax-CAPEX. = PAT+Depreciation-CAPEX
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1.5 Short Run Measures of Shareholder Investment Returns - What is ROCE?

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Return on Capital Employed - Measure that links profit before any finance costs to the capital (equity and debt) that has been used to generate profits, gives efficiency.

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1.5 Short Run Measures of Shareholder Investment Returns - How is ROCE Worked out

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1.5 Short Run Measures of Shareholder Investment Returns - What is EPS?

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1.5 Short Run Measures of Shareholder Investment Returns - How is EPS worked out

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