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Understanding and using accounts for wealth research Christopher Murphy Ravensbourne Research Limited.

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Presentation on theme: "Understanding and using accounts for wealth research Christopher Murphy Ravensbourne Research Limited."— Presentation transcript:

1 Understanding and using accounts for wealth research Christopher Murphy Ravensbourne Research Limited

2 Topics Business vehicles Types of share Options Valuing businesses Data sources

3 Business vehicles CompanyPartnershipSole Trader

4 Limited liability many 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 wrong so their personal assets are safe from creditors

5 Business vehicles CompanyPartnershipSole Trader

6 Companies UnlimitedLimited Limited by Guarantee Limited by Shares

7 Limited companies denoted by word ‘Limited’ or ‘Ltd’ in their name warns other parties that the owner’s liability is limited to their investment in the firm potential creditors thus know that the owner’s personal assets cannot be seized if the company doesn’t pay what it owes

8 Limited by guarantee over 90,000 companies have no share capital over 90,000 companies have no share capital the liability of their owners (‘members’) - ‘guarantors' as opposed to ‘shareholders’ -is limited by guarantee the liability of their owners (‘members’) - ‘guarantors' as opposed to ‘shareholders’ -is limited by guarantee a popular legal form for charities, educational bodies a popular legal form for charities, educational bodies

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

10 Partnerships OrdinaryLimitedLimited Liability

11 Limited Liability Partnership LLP form available since 2001 LLP form available since 2001 limited liability for non-negligent partners limited liability for non-negligent partners but not for those judged negligentbut not for those judged negligent has proved very popular (over 40,000) has proved very popular (over 40,000) treated like companies for filing purposes, thus have to file accounts treated like companies for filing purposes, thus have to file accounts

12 LLP ‘Designated Members’ there must be at least two they are responsible for company secretary type duties all members may be designated members

13 Limited companies Limited by Shares PublicPrivate

14 Public and private companies public companies may offer shares to public public companies may offer shares to public ‘Public Limited Company’ or ‘PLC’‘Public Limited Company’ or ‘PLC’ private companies may not private companies may not tighter rules apply to PLCs tighter rules apply to PLCs

15 Exemptions from disclosure based on company size size of PLCs irrelevant - no exemptions size of PLCs irrelevant - no exemptions nor for large private companies nor for large private companies medium and small companies get disclosure exemptions - if they choose to claim them medium and small companies get disclosure exemptions - if they choose to claim them

16 Limited by Shares PublicPrivate Small Medium Large

17 Disclosure requirements for small companies must file a balance sheet need not file need not file profit and loss accountprofit and loss account directors’ report (though these are usually filed voluntarily)directors’ report (though these are usually filed voluntarily)

18 Definition of a small company meets at least two out of three conditions meets at least two out of three conditions turnover (sales) doesn’t exceed £5.6 millionturnover (sales) doesn’t exceed £5.6 million balance sheet total (i.e. either total assets or total liabilities) doesn’t exceed £3.26 millionbalance sheet total (i.e. either total assets or total liabilities) doesn’t exceed £3.26 million average number of employees doesn’t exceed 50average number of employees doesn’t exceed 50

19 PROFILE30/04/ months GBP Turnover Profit (Loss) before Taxation Net Tangible Assets (Liab.)259,715 Shareholders Funds263,407 Profit Margin (%) Return on Shareholders Funds (%) Return on Capital Employed (%) Liquidity Ratio5.48 Gearing Ratio (%)0.12 Number of Employees

20 Bad news for researchers full accounts filed by just 1 in 8 actively trading companies

21 Limited by Shares Public UnquotedQuoted Listed on LSE Quoted elsewhere Private

22 Listed plcs only PLCs may join London Stock Exchange only PLCs may join London Stock Exchange thus becoming a ‘listed company’ thus becoming a ‘listed company’ however most Plcs are not listed however most Plcs are not listed only about 2,000 out of 8,300only about 2,000 out of 8,300

23 Quoted companies ‘listed’ and ‘quoted’ used virtually synonymously, but a distinction can be made ‘listed’ and ‘quoted’ used virtually synonymously, but a distinction can be made companies may choose to be quoted on markets other than the London Stock Exchange, e.g. companies 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 companiesPLUS Markets Group (formerly Ofex) quotes share prices for over 100 UK companies NASDAQ OMXNASDAQ OMX while not listed their shares are ‘quoted’ and more data is available while not listed their shares are ‘quoted’ and more data is available

24 Business vehicles Types of share Options Valuing businesses Data sources

25 Types of share Ordinary shares most common type most common type also called ‘equity’ shares also called ‘equity’ shares usually carry voting rights usually carry voting rights last in queue for dividends last in queue for dividends Preference shares don’t have voting rights don’t have voting rights pay a fixed dividend pay a fixed dividend preference share dividends paid before ordinary ones preference share dividends paid before ordinary ones

26 Other types of preference share cumulative preference share - get missed dividends from earlier years participating preference shares - get extra dividends in very good years redeemable preference shares

27 Convertible preference shares ‘ convertibles’ can be converted into equity shares

28 Rewards from shareholding shares are safer, but upside probably limited equity shares more risky, potentially more rewarding convertibles offer a two-way bet

29 Nominal v beneficial owners nominal owners are those listed in public records like Annual Returns –used by large portfolios for administrative convenience –and to conceal real owners’ identity

30 Business vehicles Types of share Options Valuing businesses Data sources

31 Options rights granted to directors to buy a certain number of shares at a set price within a limited period idea is to align individual performance with company’s fortunes when actual share price exceeds exercise price scope for director making a profit

32 But usually conditional ‘ forfeited options’ – lost by director leaving or failing to meet performance targets sometimes they lapse before end of exercise period

33 Option terminology ‘vesting’ – delay between award of option and them being exercisable ‘partial vesting’ – vested in stages ‘cliff’ – no shares vested in first period ‘submerged’ options – exercise price below option price ‘deemed’ – director doesn’t actually own individually (pension scheme)

34 Business vehicles Types of share Options Valuing businesses Data sources

35 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 thumb’ EV/EBITDA

36 Even for quoted companies valuation is a judgement, not a purely objective science

37 Price earnings ratio probably most common ratio used relates the earnings (profits) a company delivers to the share price (the price for those earnings)

38 Definition of PER current share price divided by earnings per share i.e. £5/25 pence= PER of 20 jargon –’PE’,’20 times earnings’,’multiple of 20’

39 Private companies even more difficult –no share price quotations to help us traditional discount of a private company’s value compared with a quoted one

40 PER for private companies ‘ earnings’ are post-tax profits ‘price’ is what a comparable company is sold for

41 BDO Private Company Price Index (PCPI) measures trends in prices

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43 But differences in PERs private company discount usually higher for smaller companies PERs vary between sectors best to look at closest comparators

44 ‘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

45 Earnings Per Share (EPS) Earnings attributable to ordinary shareholders –divided by number of issued ordinary shares

46 Dividends depends on size of ‘earnings attributable to ordinary shareholders’ and 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

47 Business vehicles Types of share OptionsValuing Data sources

48 Shareholders individual holdings shown in ‘Annual Return’ but may be hidden behind nominees –no mechanism for identifying beneficial owners in private companies

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50 Directors’ report shows holdings by individual directors in quoted companies lists all shareholders holding over 3% of total voting share capital

51 Substantial shareholdings As at 26 July 2010, the voting interests shown below in the ordinary share capital of the Company, disclosable under the Financial Services Authority’s Disclosure and Transparency Rules, had been notified to the Company. Holder % issued share capital No. of ordinary shares VA Partners I, LLC, ValueAct Capital Management, L.P., ValueAct Capital Management, LLC, ValueAct Holdings, L.P., ValueAct Holdings, L.P., and ValueAct Holdings GP, LLC %140,764,642 Schroders plc on behalf of Schroder Investment Management Ltd, Schroder Investment Management North America Ltd and Schroder & Co Ltd 5.33%26,708,863 Legal & General Group Plc and its subsidiaries 3.99%21,868,430 Lloyds TSB Group plc 3.02%16,492,181

52 Regulatory News Service London Stock Exchange’s RNS shows purchases or sales of over 3% of voting share capital above this movements of 1% up or down in a holding any acquisitions/disposals by a director

53 RNS Number : 9195H Leyshon Resources Limited 02 March 2010 Leyshon Resources Limited Holding in Company Leyshon Resources Ltd. ("Leyshon") (AIM & ASX: LRL) was informed on 26 February 2010 that Arredo Pty Ltd is interested in 15,000,000 ordinary shares in the Company, representing approximately 6.94 per cent of the issued share capital of the Company. For further information contact: Leyshon Resources Paul Atherley - Managing Director Tel: Mob:

54 1. Name of the issuer MOUCHEL GROUP PLC 2.State whether the notification relates to (i) a transaction notified in accordance with DTR 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 R 3. Name of person discharging managerial responsibilities/director DAVID TILSTON 4.State whether notification relates to a person connected with a person discharging managerial responsibilities/director named in 3 and identify the connected person N/A 5. 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-beneficial interest 1 PERSON REFERRED TO IN 3 6.Description of shares (including class), debentures or derivatives or financial instruments relating to shares ORDINARY SHARES OF 0.25 PENCE 7. Name of registered shareholders(s) and, if more than one, the number of shares held by each of them N/A 8.State the nature of the transaction PURCHASE OF SHARES 9. Number of shares, debentures or financial instruments relating to shares acquired 27,000 SHARES 10. Percentage of issued class acquired (treasury shares of that class should not be taken into account when calculating percentage) 0.024%

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