Seminar in Finance

2. SERVICES
1
A wide variety of easily scalably network
solutions that can be easily integrated into any
infrastructure.
NETWORK SOLUTION
2 Enables the lightning-speed network speed to
the customers.
WIRELESS TERRESTRIAL BROADBAND
3
An offering of relevant, customized, and
content-based service over SMS, USSD, and
WAP.
TELECOM VALUE ADDED SERVICE

5. Common Shares
Preference Shares

6. Common Shares
Preference Shares

7. Common shares are the most common form of equity and represent an
ownership interest in a company

8. Right to vote
Statutory Cumulative
Option to Embed
Callable Putable

9. Preference shares are the company stock that rank above common shares
with respect to the payment of dividends and the distribution of the
company’s net assets upon liquidation.

10. Right to dividend
Cumulative
Non - cumulative
Right to profit
Participating
Non - participating
Option to convert
Convertible

11. Cumulative preference shares
Non-cumulative preference shares

12. Cumulative preference shares require the companies to pay
cumulative dividends in the coming year when they incur profit, in
case there are any unpaid dividends.

13. Non-cumulative preference shares are in which the shareholders
do not get accumulated outstanding dividends for the years when
there are insufficient profits.

14. Participating preference shares
Non-participating preference shares

15. Preference shareholders usually get a fixed rate of dividends.
However, participating preference shares offer additional benefits.

16. Shareholders owning these shares do not enjoy the right to
participate in extra profits and only get fixed dividends.

17. Convertible preference shares are those in which the holder gets
the right to convert them into equity shares after a specific time
mentioned in the memorandum.

18. Ownership Yes No
Cash Inflows Less predictable; Lower More predictable; Higher
Voting rights Yes (Mostly) No
Dividend Payment
Order
After debtholders and preferred
stockholders
After debtholders
Fixed Dividend No Yes
Firm’s Obligation to
Pay Dividends
Not Obliged Obliged

19. Long - term financial statement
and
Short - term financial planning

20. Securities that are openly or easily traded in a public market (NYSE, BSE...).
Securities that usually issued to institutional investors via private placement.

21. Who can
purchase
anyone with brokerage account ‘accredited’ Investors only
Liquidity highly liquid less liquidity
Price is determined in a market
is negotiated between the firm
and its investors
Investor
Involvement
passive active
Pressure shorter-term goals long-term goals

22. Financial
disclosure
required to disclose detailed
financial statements
disclose what the firm
chooses to their limited partners
Third-party
analysis
lots of third-party analysis is
available
is very limited or hard to access
• Safer
• More readily available
for all types of investors
• Easily trade daily
• Higher potential return
• Access to unique investment
opportunities
• Active involvement

23. Venture capital
(VC)
Leveraged buyout
(LBO)
Private investment in
public equity

24. Venture capital
(VC)
• Capital provided early in their life cycle
• Investors can be family, friends, wealthy
individuals, or private equity funds
• VC investments are illiquid
• Investors often have to commit funds for
3 to 10 years before they can cash out

25. Leverage Buyout
(LBO)
• Buying equity using debt financing
• Investors usually take a controlling
interest
• The assets of both the acquiring and
acquired companies are used as
collateral for the loans to finance the
buyout
• If the buyers are the firm's current
management => Management buyout
(MBO)

26. Private investment in
public equity (PIPE)
• For public firms that need capital quickly,
they sell private equity to investors.
• Can buy the stock at a sizable discount to
its market price.
• Obtains funding within 2-3 weeks.

27. Investing in Non-
domestic Equity
Securities

28. • Direct investing in the securities of foreign companies simply refers to
buying a foreign firm's securities in foreign markets

29. Some obstacles to direct foreign investment are:
• The investment and return are denominated
in a foreign currency.
• The foreign stock exchange may be illiquid.
• The reporting requirements of foreign stock
exchanges may be less strict, impeding
analysis.
• Investors must be familiar with the
regulations and procedures of each market in
which they invest.

30. • It represents ownership in a foreign firm and are traded in the markets
of other countries in local market currencies.
• Depository bank acts as a custodian and manages dividends, stock
splits, and other events.
• The value is affected by exchange rate changes, firm fundamentals,
economic events, and any other factors that affect the value of the
stock.

31. Sponsored DR
Unsponsored DR
Based on responsibilities
(foreign companies - custodian banks)
Based on place of
issurance and transaction
Global depository receipts
American depository receipts

32. • The firm is involved with the
issue
• It provides the investor voting
rights and is usually subject to
greater disclosure requirements.
• The firm isn't involved with the
issue
• The depository bank retains
the voting rights.

33. • Issued outside the US and the
issuer’s home country.
• Denominated in U.S. dollars and
can be sold to U.S. institutional
investors.
• Not subject to the capital low
restrictions imposed by
governments
• Chooses to list the GDR in a market
where many investors are familiar
with the firm
• Denominated in U.S. dollars and
trade in the U.S.
• Based on the ADS traded in the
firm's domestic market.
• Allow firms to raise capital in the
U.S or use the shares to acquire
other firms.

34. Trading
places
Raising
capital on
US markets
SEC
Registration
OTC
Yes
No
Stock exchange
No
Yes
Stock exchange
Yes Yes
Yes No
Private
placement
Firm listing
expenses
Low High High Low

35. • Global registered shares (GRS) are traded in different currencies on
stock exchanges around the world.
• An exchange-traded fund (ETF) that is a collection of DRs.
• ETF shares trade in markets just like common stocks.

36. Risk and Return
Characteristics of Equity
Securities

37. Risk and Return
Characteristics of
Equity Securities
Return
Characteristic
s of Equity
Securities
Risk of Equity
Securities

38. Return Characteristics
of Equity Securities

39. Price change
(or capital gain)
Dividend income
Foreign exchange gains
(or losses)

40. Total return, Rₜ = (Pₜ - Pₜ ₋ ₁ + Dₜ)/Pₜ ₋ ₁
• Price changes: P - P
t t -1
• Dividends income: Dt
• Foreign exchange gains (losses): the profit earned/lost due to
favorable changes in currency exchange rates between the time an
investor purchases foreign equity securities and when they sell or
convert these securities back to their home currency

41. Risk of Equity
Securities

42. Risk of Equity
Securities
• The risk of any security is based on the
uncertainty of its future cash flows.
• The risk of an equity security can be
defined as the uncertainty of its
expected (or future) total return.
• Risk is most often measured by
calculating the standard deviation of the
equity’s expected total return.

43. Risk of Equity
Securities
• Forecasting and budgeting is one of the
necessary steps in working capital
management, acting as a basis for future
decision making and a back-up for
unforeseeable events.
• Projected financial statements predict
Apple's financial performance and
positions from 2021 to 2023, along with
the cash budget for 4 quarters of 2021.

44. Basis for forecasting

45. Method
• Using the equity’s average historical
return and the standard deviation of this
return as proxies for its expected future
return and risk.
• Estimating a range of future returns over
a specified period of time, assigning
probabilities to those returns, and then
calculating an expected return and a
standard deviation of return based on
this information.

46. E(r) =
Var(r) =
Standard deviation =

47. Risk comparison of
types of equity
securities

48. Dividends on shares are fixed as
a percentage of the par value.
Returns are unknown as can be from
capital gains (price appreciation) and
dividends.
Dividends are paid before
common shares.
On liquidation, common shareholders
have residual claim, they get paid after
claims of debt and preferred shares
have been met.
On liquidation, preference
shareholders get par value of the
shares.
=> Preference shares are less risky
Foreign investments are subject to
currency exposure risk.

49. Cumulative preference shares
entitle an investor the right to
receive any unpaid dividends before
any dividends can be paid to
common shareholders.
Non-cumulative shares do not
entitle an investor to missed
dividends.
=> Cummulative shares are less risky

50. Putable shares allow investors to
sell back their equity to an issuing
company at a fixed price, thereby
minimizing the impact of any fall in
price.
If the market price drops, the
investors don’t have the option
to put the shares back to the firm
at a fixed price.
=> Putable shares are less risky

51. Callable common shares give the
issuer the right to buy back the
shares from shareholders at a price
determined when the shares are
originally issued.
Non-callable shares lack the feature
that allows the issuer to call back the
shares before the maturity date.
Callable shares provide an
advantage to the issuer because
they can be called back if market
interest rates decline.
Non-callable shares offer stability to
investors because they are not
subject to the risk of being called
back by the issuer.
=> Non-callabe shares are less risky

52. Equity Securities and
Company Value

53. Raise capital
Increase liquidity

54. • To finance the company’s revenue-generating activities in
order to increase its net income and maximize the wealth of
its shareholders.
• In some cases, the capital is used to finance the purchase
of long-lived assets, capital expansion projects, research
and development, the entry into new product or
geographic regions, and the acquisition of other
companies.

55. • To increase the book value or shareholders’ equity on a
company’s balance sheet of the company and maximize
the market value of its equity.
• To ensure that the stock price rises (maximizing market
value of equity).

56. • A key ratio used to determine management eficiency is the accounting
return on equity, usually referred to simply as the return on equity (ROE).

57. Next year’s revenue = This year x (1 + 0,8211)

59. 31 Dec
2007
31 Dec
2008
Pfize
r
Novartis AG
GlaxoSmithKlin
e
11.9
%
26.3%
24.4%
Source: www.stock-analysis-
on.net
13.2
%
16.5%
44.5%

60. if net income decreases at a
slower rate than shareholders’
equity, which is not a positive
sign
ROE CAN
INCREASE:
if the company issues debt and
then uses the proceeds to
repurchase some of its
outstanding shares
ROE CAN
INCREASE:

61. Book Value
versus
Market Value

62. reflects a firm’s financial decisions and operating results since its inception.
reflects the market’s consensus view of a firm's future performance.
is the market value of a firm's equity divided by the book value of its equity.

63. Book value of equity per share = Total shareholders’equity/Shares outstanding
Market price per share = Market price per share x Shares outstanding
Price-to-book ratio = Market price per share/Book value of equity per share

64. 31 Dec
2008
Source: www.stock-analysis-on.net
13.2
%
16.5%
44.5%
Market price per
share
Book value of
equity per share
Price-to-book
ratio
Pfize
r
Novartis AG GlaxoSmithKlin
e
$16.97
$8.5
3
1.99
$47.64
$22.32
2.13
$35.8
4
$4.5
4
7.89
Source: www.stock-analysis-on.net

65. The Cost of Equity and
Investors’ Required
Rates of Return

66. The Cost of Equity
versus
Investors’ Required Rates of Return

67. • is the return that a company requires for an investment or project, or the
return that an individual requires for an equity investment.
• is the minimum return an investor will accept for owning a company's
stock, to compensate them for a given level of risk.

68. Dividend Discount Model
(DDM)
Capital Asset Pricing Model
(CAPM)

69. THANK YOU
FOR LISTENING !

70. • What are some reasons why may choose to invest in
debt or equity securities?

71. • What are the differences between management
buyout and management buy - in?

72. • Why might a company choose to issue preferred
stock although it has to ensure consistent dividend
payments to investors?