Fundamental

Lecture Modules - Fundamental

The lectures in this section strive to answer the question, "How good will this company be as a generator of dividends in the future?" This begins with an understanding and interpretation of company financial statements together with all the language that surrounds them and goes on to ratio analysis and advanced topics in share assessment and selection.



The Eight Relationships

In this lecture we go through eight important and often-used relationships in the share market. These begin with the calculation of the earnings per share and dividends per share and go on to look at the earnings yield, dividend yield and price:earning ratio. Finally, we consider the calculation of market capitalisation, retained earnings and dividend cover. All these ideas are commonly used in the financial media.

Dividends

In this lecture we look at the subject of distributions to shareholders. The dividend policy of a company is determined by many factors including its blue chip status and its needs for cash. The Companies Act makes strict rules for the payment of distributions, including the "solvency and liquidity test". Dividends are subject to "dividends withholding tax" and are impacted by the dilution of shares through new issues, and share buy-backs. Finally we look at the five dates in the payment of a dividend.

Understanding Companies

This lecture begins with a look at the financial year-end and what the Companies Act says about it. We look at changes to a company's financial year and the importance of the financial year in making comparisons between listed companies. We consider the calculation of market capitalisation, share splits, consolidations, the quality of earnings, defensive and cyclical shares and ease of management.

Earnings and Value

In this lecture we begin with a discussion of the various factors which impact the number of shares in issue and continue to look at the difference between basic and headline earnings, the impact of changes in a company's financial year end and of comparisons between companies with different financial year-ends. Then we look at various factors which impact on the fundamental value of a share, including the economy, behaviour within society, insider information, oversupply, nature of business, profit trend, growth categorisation, monopolies, entry threshold, debt levels, threats and opportunities, new technology, management, market rating and taxation.

Basic Financial Accounts

This lecture offers a very basic step-by-step introduction to the recording of financial transactions in a company's books of account. The intention is to demonstrate the impact of various possible transactions on the balance sheet and to overcome the non-accountant's fear of financial accounts. It is not meant for students with a financial background.

Corporate Financial Statements

In this lecture we consider the structure of financial statements and the balance sheet equation. We look at the various accounts and how individual transactions impact on the equation. We examine the four main headings - incomes liabilities, expenses and assets. Then we examine the profit calculation and break it down into trading account, profit and loss and income statement. Finally we consider the concepts of disclosure, the notes to the accounts and the matching principle.