Professional Documents
Culture Documents
characteristics
Financial ratios
Non-financial
characteristics
Foreign exposure
Quality of management
Ownership structure
consideration
Economic cyclicality
Growth prospects
R&D expenses
Competitors
Sources of supply
Degree of regulation
Labour relationships
Accounting policies
Financial Ratios
Profitability ratios
ROCE=PBIT/Capital
employed
Financial Ratios
Profitability ratios
Return
on equity=Earnings attributable to
ordinary shareholders/shareholders equity
Asset turnover: sales per $1 capital employed
= sales / capital employed
Net profit margin = PBIT/Sales
Gross profit margin = Gross profit/Sales
Financial Ratios
Liquidity ratios
Current
Financial Ratios
EPS
Financial Ratios
Financial Ratios
Financial
Interest
Financial Ratios
Investors
Suppliers and lenders
Managers
Financial Ratios
Financial Ratios
Trends
Current and previous years figures
Five year financial summaries
to capital employed
Cumulative goodwill
The
A single
Easy
goal
to understand
to manipulate
Short-term
Makes
focus
comparison difficult
Financial obligations
Contingencies
Sources
of finance
of debt
Disadvantages of debt
Debt instruments
Types
of corporate debt
Trust deed
Issuing corporate bonds
Cost of debt
Preference shares
Characteristics
of preference shares
Types of preference shares
Advantages and disadvantages of preference
shares
Cost of preferred stock
Retained earnings
Advantages
Cost of capital
Cost
This
Difference
The
Assumptions
Footnotes
Example (a): AB plc has just paid a dividend of 40 cents per share, this
has grown from 30 cents four years ago.
Required
What is the estimated cost of equity capital if the share price is $8.20?
using
g=rb
$
(Market value)
Interest x [1 - tax]
Redemption value
Changing risk
Where the risk of an extra project is different from normal, there is an argument for
a cost of capital to be calculated for that particular project; this is called a marginal
cost of capital.
Dividend policy
Irrelevant theory
The value of a company is not affected by its financial
policy
Dividend policy
residual theory
only pay dividend when all profitable projects had been funded
Target
payout ratio
as signals
theory
and taxes
Risk management
Risk requires
Hedging
Identify
Measurement
Transfer
Diversification
Product diversification
Geographical diversification
Financial risk
Credit risk
Liquidity risk
Cash management risk
Currency risk
Interest risk
Risks arising from other changes in the macroeconomic environment
Political risk
the
Economic risk
Arises
Fiscal risk
Is
Regulatory risk
Is
Operational risk
Is
Reputational risk
Is
Management structure
Joint
ventures
Ceding control but obtaining profit by management
contract
Project reassessment
Post-completion audit
make a conclusion for performance measurement or reference
Behavioural finance
Behavioural finance
Share valuation
Acquisitions
CAPM
Financial strategy
Overconfidence