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F3 (New) Flashcards

1
Q

Not for profit value for money measures:

A

Economy = spend less

Efficiency = spend well (maximum out of resources)

Effectiveness = spend wisely (don’t stretch resources so far that objectives can’t be met)

Equity = spend fairly

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2
Q

Dividend Irrelevancy Theory is…

A

as long as org invests in positive NPV projects, shareholder wealth will increase

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3
Q

Clientele Effect

A

consistent divi policy will attract a clientele of shareholders who like that approach

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4
Q

Bird-in-the-Hand

A

some prefer divi now rather than promise of uncertain divis in the future

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5
Q

Signalling effect

A

Divis give signal about performance of company so can result in selling of shares

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6
Q

Impact on shareholder wealth of…

scrip dividends

Share repurchase

A

Scrip dividends - no impact on shareholder wealth

Share repurchase - same impact as if divi were paid

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7
Q

VAR =

95% Z score =

99% Z score =

A

VAR = Z score x standard deviation

95% Z score = 1.645

99% Z score = 2.33

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8
Q

Allocating interest - sum of digits method

A

Year 1: n / { n(n+1) / 2 } x total interest

Year 2: n - 1 / { n(n+1) / 2 } x total interest

Year 3: n - 2 / { n(n+1) / 2 } x total interest

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9
Q

Operating profit margin =

Gross profit margin =

A

Operating profit / revenue x100

Gross profit / revenue x100

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10
Q

ROE =

ROCE =

A

ROE = NET profit / equity x100

ROCE = Op profit / cap employed x100

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11
Q

EPS =

A

Profit AFTER tax, interest & pref divis / no. shares

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12
Q

P/E =

A

share price / EPS

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13
Q

Divi Cover =

A

EPS / DPS

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14
Q

Divi Yield =

A

DPS / share price

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15
Q

Total annual return to investors =

A

{(Closing share price - opening share price) + divi} / opening share price

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16
Q

GRI

sustainability reporting standards 3 key perspectives:

A

Economic, environmental, social

17
Q

GRI

Universal Standards:
Foundation principles
General disclosures
Material topics

Sector standards

Topic standards

A

Universal Standards: must be applied by all
Foundation principles - report content & guidance
General disclosures - contextual details
Material topics - how material topics are managed

Sector standards: for specific industries

Topic standards: specific topic standards selected

18
Q

GRI

8 reporting principles

A
  1. accuracy
  2. clarity
  3. completeness
  4. timeliness
  5. balance
  6. comparability
  7. sustainability context
  8. verifiability
19
Q

Integrated reporting

guiding principles for preparation

A
  1. Strategic focus & future orientation
  2. connectivity of info
  3. stakeholder relationships
  4. materiality
  5. conciseness
  6. reliability & completeness
  7. consistency & comparability
20
Q

Integrated reporting

8 content elements to include

A
  1. org overview & external environment
  2. Governance
  3. Business model
  4. Risks & opportunities
  5. Strategy & resource allocation
  6. Performance
  7. Outlook
  8. Basis of preparation & presentation
21
Q

GEARING

Traditional view

1958 M&M no tax theory

1963 M&M with tax theory

A

Traditional view - there is an optimum gearing level where WACC is minimised and value of co. is maximised

1958 M&M no tax theory - WACC is constant at all levels of gearing

1963 M&M with tax theory - WACC reduces as gearing increases due to the tax relief of debt

22
Q

M&M equation for Keg=

A

Keg = Keu + (Keu - Kd) {Vd(1-t) / Ve}

23
Q

M&M equation for WACC =

A

WACC = Keu x {1 - (Vd x t / Ve + Vd )}

24
Q

Equation to degear and regear beta between proxy & actual company

A

Bu = Bg { Ve / Ve+Vd(1-t) }

25
CAPM to find Ke using beta
Ke = Rf + B(Rm - Rf) Rf = risk free rate Rm = avg. market return Rm - Rf = market premium/risk premium
26
Business Valuation: P/E
total value of equity = PE ratio x earnings earnings = PAT less pref divis and adjust for one off items + easy & quick + good for MAJORITY purchase - hard to find suitable P/E ratio - are profits sustainable? - subjective profits, not cashflows
27
Business Valuation - Discounted Cashflows
To ALL investors: EXCL interest disc @ WACC NPV = equity + debt To EQUITY ONLY: INCL interest disc @ Ke NPV = equity only + best method, time value considered + gives maximum value - hard to forecast CFs & determine disc rate - assumes rates & tax stay constant
28
Calculating perpetuities =
x by 1 / r-g x by DF from prior year
29
Business Valuation - Net Assets
Net assets per SFP (assets - liab), then adjust for revaluations To incl. intangibles: PBIT X tang assets x avg. return (X) -------- Extra profit due to intangibles X Tax (X) -------- Post tax extra profit X CIV = post tax extra profit x 1 / disc rate Value of entity = CIV + tangible assets + minimum value + useful for liquidation + valuation readily available - future profitability ignored
30
Business Valuation - DVM
Value per share = D1 / Ke-g If not given g... 1+g = (Divi now / Divi before)^1/n OR g = rate of return x % profits retained + good for MINORITY purchase - hard to find suitable Ke & forecast divis
31
Yield adjusted TERP =
1 / (n+1) x {(N x cum rights price) + issue price x {yield new / yield old)}
31
TERP =
(value of shares before issue + cash raised + NPV of project ) / no. shares after issue
32
To calc growth rate of given figures
Sq root ^no. years (ending figure / starting figure)
33
Interest Rates = FRAs & IRGs
(IRG is option to fix RFR) HIGH - loan, call, buy FRA, use caps LOW - Deposit. put. sell FRA, use floors
34
Interest Rates - Futures & Options
1. Buy (deposit, call, use floor) OR sell (loan, put, use cap) 2. Date 3. No. contracts = (amount / contract size) x (length / 3 months) 4. Initial margin = margin rate x no. contracts x contract size x 3/12 (made back if sold, paid if bought)
35
Forward contracts (FX)
CONTRACTUALLY BINDING Take spot rate HIGH - receiving from customer, sell LOW - paying supplier, buy Add a disc Subtract a premium = forward rate
36
Futures (FX)
1. buy or sell (check contract currency) 2. Date ( mar, jun, sep, dec) 3. no contracts = amount of transaction / contract size Note translate @ FUTURES PRICE 4. Initial margin = no. contracts x margin per contract Note convert @ TODAYS SPOT
37
Options (FX)
1. Buy (call) or Sell (Put) 2. Date 3. no contracts = amount of transaction / contract size Note convert @ STRIKE PRICE 4. Premium = cents per pound x no. contracts x contract size = USD! Note: convert @ TODAYS SPOT
38
Money market hedges
Paying Fx to supplier: calc size of deposit needed in the fx ready to pay the supplier convert fx deposit to home currency @ TODAYS SPOT borrow home currency & incur interest Receiving Fx from customer: Calc size of Fx loan required today so that customers receipt pays it off Convert Fx loan to home currency @ TODAYS SPOT Deposit home currency, earning interest

CIMA (12 decks)

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