understanding-and-using-company-accounts-for-wealth-research.ppt

Understanding and using accounts for wealth researchChristopher MurphyRavensbourne Research Limited

Topics

Business vehiclesTypes of shareOptionsValuing businessesData sources

Limited liabilitymany businesses (and nearly all those of much size) have limited liability

their owners stand to lose only their investment in the business if things go wrongso their personal assets are safe from creditors

Limited companiesdenoted by word Limited or Ltd in their namewarns other parties that the owners liability is limited to their investment in the firmpotential creditors thus know that the owners personal assets cannot be seized if the company doesnt pay what it owes

Limited by guaranteeover 90,000 companies have no share capitalthe liability of their owners (members) - guarantors' as opposed to shareholders -is limited by guaranteea popular legal form for charities, educational bodies

Limited by sharesfar more common (well over 2 million of them)liability of the members shareholders is limited to the nominal value of their sharesnominal (face or par) value of shares is very different from their market valueshares with nominal value 10 pence each, currently being traded on stock market at 643 pence

Limited Liability Partnership

LLP form available since 2001limited liability for non-negligent partnersbut not for those judged negligenthas proved very popular (over 40,000)treated like companies for filing purposes, thus have to file accounts

LLP Designated Members

there must be at least two

they are responsible for company secretary type duties

all members may be designated members

Limited companies

Public and private companiespublic companies may offer shares to publicPublic Limited Company or PLC

private companies may not

tighter rules apply to PLCs

Exemptions from disclosure based on company sizesize of PLCs irrelevant - no exemptionsnor for large private companies

medium and small companies get disclosure exemptions - if they choose to claim them

Disclosure requirements for small companiesmust file a balance sheet

need not fileprofit and loss accountdirectors report (though these are usually filed voluntarily)

Definition of a small companymeets at least two out of three conditions

turnover (sales) doesnt exceed 5.6 millionbalance sheet total (i.e. either total assets or total liabilities) doesnt exceed 3.26 millionaverage number of employees doesnt exceed 50

PROFILE30/04/200912 monthsGBPTurnoverProfit (Loss) before TaxationNet Tangible Assets (Liab.)259,715Shareholders Funds263,407Profit Margin (%)Return on Shareholders Funds (%)Return on Capital Employed (%)Liquidity Ratio5.48Gearing Ratio (%)0.12Number of Employees

Bad news for researchers

full accounts filed by just 1 in 8 actively trading companies

Listed plcsonly PLCs may join London Stock Exchangethus becoming a listed company

however most Plcs are not listedonly about 2,000 out of 8,300

Quoted companieslisted and quoted used virtually synonymously, but a distinction can be madecompanies may choose to be quoted on markets other than the London Stock Exchange, e.g.PLUS Markets Group (formerly Ofex) quotes share prices for over 100 UK companiesNASDAQ OMX

while not listed their shares are quoted and more data is available

Types of shareOrdinary shares

most common typealso called equity sharesusually carry voting rightslast in queue for dividendsPreference shares

dont have voting rightspay a fixed dividendpreference share dividends paid before ordinary ones

Other types of preference sharecumulative preference share - get missed dividends from earlier yearsparticipating preference shares - get extra dividends in very good yearsredeemable preference shares

Convertible preference shares

convertibles

can be converted into equity shares

Rewards from shareholding

shares are safer, but upside probably limitedequity shares more risky, potentially more rewardingconvertibles offer a two-way bet

Nominal v beneficial ownersnominal owners are those listed in public records like Annual Returnsused by large portfolios for administrative convenienceand to conceal real owners identity

Optionsrights granted to directors to buy a certain number of shares at a set price within a limited periodidea is to align individual performance with companys fortuneswhen actual share price exceeds exercise price scope for director making a profit

But

usually conditionalforfeited options lost by director leaving or failing to meet performance targetssometimes they lapse before end of exercise period

Option terminology

vesting delay between award of option and them being exercisablepartial vesting vested in stagescliff no shares vested in first periodsubmerged options exercise price below option pricedeemed director doesnt actually own individually (pension scheme)

Many valuation techniques Market Capitalisation (market cap)Earnings and Dividend payout multiples (PER & DPS)Total Shareholder Returns (TSR)Net Asset Value (NAV)Discounted Cash Flow (DCF)acquisition prices paid for comparable companies (comps)sectoral rules of thumbEV/EBITDA

Even for quoted companies

valuation is a judgement, not a purely objective science

Price earnings ratio

probably most common ratio usedrelates the earnings (profits) a company delivers to the share price (the price for those earnings)

Definition of PER

current share price divided by earnings per sharei.e. 5/25 pence= PER of 20

jargon PE,20 times earnings,multiple of 20

Private companieseven more difficultno share price quotations to help us

traditional discount of a private companys value compared with a quoted one

PER for private companies

earnings are post-tax profits

price is what a comparable company is sold for

BDO

Private Company Price Index (PCPI) measures trends in prices

www.bdo.co.uk/library

But differences in PERs

private company discount usually higher for smaller companies

PERs vary between sectors

best to look at closest comparators

Bottom line

earnings attributable to equity shareholders

could all be paid out (distributed) to the shareholders as dividends

but management often retain (reinvest in the business) part or all of the profit

Earnings Per Share (EPS)

Earnings attributable to ordinary shareholdersdivided by number of issued ordinary shares

Dividends

depends on size of earnings attributable to ordinary shareholdersand dividend policy chosen by board

measured by Dividends Per Share (DPS)individual dividend pay-outs determined by DPS multiplied by number of shares they hold

Business vehiclesTypes of shareOptionsValuingData sources

Shareholders

individual holdings shown in Annual Returnbut may be hidden behind nomineesno mechanism for identifying beneficial owners in private companies

Directors report

shows holdings by individual directors

in quoted companies lists all shareholders holding over 3% of total voting share capital

Substantial shareholdingsAs at 26 July 2010, the voting interests shown below in the ordinary share capital of the Company, disclosable under the Financial Services Authoritys Disclosure and Transparency Rules, had been notified to the Company.

Holder% issued share capitalNo. of ordinary sharesVA Partners I, LLC, ValueAct Capital Management, L.P., ValueAct Capital Management, LLC, ValueAct Holdings, L.P., ValueAct Holdings, L.P., and ValueAct Holdings GP, LLC125.74%140,764,642Schroders plc on behalf of Schroder Investment Management Ltd, Schroder Investment Management North America Ltd and Schroder & Co Ltd5.33%26,708,863Legal & General Group Plc and its subsidiaries3.99%21,868,430Lloyds TSB Group plc3.02%16,492,181

Regulatory News Service

London Stock Exchanges RNS shows

purchases or sales of over 3% of voting share capitalabove this movements of 1% up or down in a holdingany acquisitions/disposals by a director

RNS Number : 9195HLeyshon Resources Limited02 March 2010Leyshon Resources LimitedHolding in CompanyLeyshon Resources Ltd. ("Leyshon") (AIM & ASX: LRL) was informed on 26 February 2010 that Arredo Pty Ltd is interested in15,000,000 ordinary shares in the Company, representing approximately 6.94 per cent of the issued share capital of the Company.For further information contact:Leyshon ResourcesPaul Atherley - Managing Director Tel: +86 137 1800 1914 Mob: +61 417 475 038

1.Name of the issuerMOUCHEL GROUP PLC2.State whether the notification relates to (i) atransaction notified in accordance with DTR 3.1.2 R,(ii) a disclosure made in accordance LR 9.8.6R(1) or(iii) a disclosure made in accordance with section 793 of the Companies Act (2006).(I) A TRANSACTION NOTIFIED IN ACCORDANCE WITH DTR 3.1.2 R3.Name of person discharging managerialresponsibilities/directorDAVID TILSTON4.State whether notification relates to a personconnected with a person discharging managerial responsibilities/director named in 3 and identify the connected personN/A5.Indicate whether the notification is in respect of a holding of the person referred to in 3 or 4 above or in respect of a non-beneficialinterest 1PERSON REFERRED TO IN 36.Description of shares (including class), debentures or derivatives or financial instruments relating to sharesORDINARY SHARES OF 0.25 PENCE7.Name of registered shareholders(s) and, if more than one, the number of shares held by each of themN/A8.State the nature of the transactionPURCHASE OF SHARES9.Number of shares, debentures or financialinstruments relating to shares acquired27,000 SHARES10.Percentage of issued class acquired (treasury shares of that class should not be taken into account when calculating percentage)0.024%

[email protected]

020 868 0487

07 525 98 44 32

understanding-and-using-company-accounts-for-wealth-research.ppt

Documents