Interest Yield
Interest yield is money earned as a percent of the investment
Interest Yield = Coupon/clean price
e.g. 5% coupon and clean price of £125
5/125 = 4%
Redemption Yield
The yield of a stock calculated as a percentage of the redemption price with an adjustment made for any capital gain or loss which that price represents relative to the current price
Interest yield - or + ((gain/years to redemption/clean price))
E.g. Coupon of 5%, clean price of £125, redemption date = 7 years
Interest Yield = 5/125 = 4%
Price is trading above nominal therefore loss
25/7/125 = 2.86%
4% - 2.86% = 1.14%
Earnings Per Share (EPS)
Widely quoted statistics in relation to a companies performance
- Allows investors to see the trend of in a companies profitability
- All listed companies required to publish eps on their accounts
EPS = Profit attributable to ordinary shareholder / Number of ordinary shareholders
Dividend Yield
Measure of dividend as a percentage return on the current share price
Dividend / number of ordinary shares in issue = dividend per shares
Dividend yield = dividend per share / current share price
Dividend cover
How many times the dividend could be paid out of the available current earnings.
- Individual Basis as EPS / Dividend per shares
- Total profit basis as Profit attributable to ordinary shareholders / Dividend paid to ordinary shareholders
Price to Earning Ratio P/E
How highly investors value the earning of a company
- Should be used to compare companies in same sector rather than across market
- If P/E is higher than industry average, it means shares are in great demand and higher expectations for growth
P/E = Current market share price / EPS
Net Asset Value
Measures the amount available to shareholders if the company were to close down, sell down or pay all its bills.
- Provides a useful guide to the price at which shares should trade for companies
- Less useful for companies that are valued on their earnings potential
Useful valuation figures if
- Takeover bid is made
- Liquidity seems a possibility
NAV = Net assets attributable to ordinary shareholders / number of ordinary shares in issue
Indices
- Limitations
- UK INDICES
- US INDICES
- Japanese
- German
- Hong Kong
- The larger the company, the bigger its weighting in the index
Limitations
- Do not include costs of buying and selling, CGT or management expenses
- Assumes investors are fully committed and hold no cash balances
UK INDICES
- FTSE All share index
- value of ftse 100, ftse 250 and ftse small cap, over 600 companies - FTSE 100
- Biggest 100 companies listed on the London stock exchange - FTSE 250
- The next 250 biggest companies, from 101 to 350 by market cap - FTSE 350
- Combination of FTSE 100 and FTSE 250
US INDICES
- Dow Jones 30
- Top 30 blue chip companies - S&P 500
- NASDAQ
- Small young companies which are fast growing
Japanese
- Nikkei 225
- Topix
- Nikkei 300
German
1. DAX 30
Hong Kong
1. Hang Seng Index
Properties / Rental Yields
1Q ) A property is advertised at £175,000 with potential rental income of £900 per month. The legal and furnishing costs are £8,000 and general management expenses (25%) will need to be deducted from the rent
- Workout the rental yield
2Q) SDLT payable on a residential property of £275,000 (Ignores first time buyer)
Stamp duty laws
1A) (Gross rent - Expenses) / Market price + costs of buying
((900-225)x12) / £175,000 + £8,000
= 4.43%
2A) first 125,000 at 0%
125,000 at 2% = £2,500
25,000 at 5% = £1,250
= £3,750
Stamp duty land tax
- Payable within 14 days of the date of the transaction
Rent a room
- Owners who let furnished rooms in their only or main residence
- Does not apply to unfurnished accommodations
- Must occupy the property as the same time as tenant
- No tax payable if gross rent before deducting expenses does not exceed £7,500
- Only one exemption amount per residence
- Rent taken into account is the payment for the accommodation plus any payment for related goods and services
- If tenant sub lets, they are both entitled to relief of maximum of £3,750
If the client exceeds £7,500, taxpayers have a choice they can either:
- Pay tax on the excess over £7,500 with no deductions for expenses
- Be taxed on the gross rent received, less expenses with no rent a room relief
