Equities Flashcards
(49 cards)
What does the secondary market do for shares?
Allows sale of equities for liquidity but does not raise capital for companies
What are the markets for uk stocks?
London Stock Exchange (LSE)
Alternative Ivestment Market (AIM) for those that don’t qualify for the LSE
How are shares categorised
Size
Correlation with the economy
Finacial characteristics
What does UKLA do?
They are a special part of the FCA that decides which companies can be listed and go on the main market.
Who regualtes the AIM
The LSE
What is AIM for
Allow access to primary and secondary markets for smaller newer firms.
Less barriers to entry
Costs are lower.
What are ordinary shares?
Bulk share of a company
Rank behind other shares in receiving dividends
What is the dividend allowance?
There is no tax on the first £1000 of dividend
What does a basic tax rate payer pay on dividends?
8.75%
How much do higher rate taxpayers pay on dividends?
33.75%
How much do additional rate tax payers pay on dividends?
39.35%
What are preferences stocks?
Pay a fixed rate of return, but only when the company has sufficient profits
Ranks ahead of ordinary bonds for paying dividends and company going bust.
What are the different types of preference shares?
Cumulative - pays missed divs later.
Non-cumulative - div lost
Participating - fixed dividend and can have bonus
Redeemable - firm buys back at preset date or when they choose.
Convertible - to ordinary shares
What costs come with buying and selling shares?
Commision to dealer
Stamp duty or SDRT
POTAM levy
Describe stamp duty
Paper transactions
0.5%
Nearest £5
£1000 threshold
Describe SDRT
Electronic transactions
0.5
Nearest penny
No threshold
What is stamp and SDRT not spent on?
AIM
OEICs
Unit in trusts
What is the POTAM levy
£1 on transactions over £10000 paid to the panel of takeovers and mergers.
Responsible for looking into competitive impacts of mergers and takeovers
What are the risks of equities?
Share dividend volatility
Equity capital risk
Counterparty failure (FSCS may pay)
Currency risk
Liquidity risk
Regualtory risk
What is earning per share for?
Seeing trends in profitability.
Comparison
Profits are distributed after tax, so remember to remove them if given.
What is P/E ratio used for?
How high investors value earnings of company?
High = more demand and higher willingness to pay price
or overvalued
What is the dividend per share used for?
Comparison of return between shares, bonds cash deposits.
Dividend yield
Shows the return investors are receiving in the way of annual income.
Does not necessarily mean sustainable
What is the dividend cover used for?
Shows how many times the dividend could have been paid from the periods profits.
Less than 1 would suggest utilising reserves
