This post has been produced by B J Harford FCCA, FIAB, Principal at Woodgrove Tutorials
Woodgrove Tutorials is an IAB Accredited Training Provider. Their Principal, Brian J Harford FCCA is an Award Winning qualified Accountant with 36 years teaching experience in Bookkeeping & Accounts including 17 years as a Part Time Lecturer at the London Metropolitan University (formerly Guildhall University)
For website see: www.woodgrove-tutorials.co.uk
I thought it would be useful to give IAB Students and Members a description of the meaning of the share prices and related data which is quoted daily in the financial press. Most successful privately-owned companies will eventually reach a stage in their development where they consider whether the next natural step is to join a public market.
The share prices of major Limited Companies are quoted on the Financial Times Stock Exchange (FTSE). These are indexes that are quoted in the stock exchange the 100 largest companies by market value on the London Stock Exchange. These share prices are quoted in the Financial Times and in other newspapers. There are approximately 1,400 Companies quoted on the Main Market with a Market Value of £3.7 Trillion.
Additionally there is:
- The FTSE 250 Index is a capitalisation-weighted index consisting of the 101st to the 350th largest companies on the London Stock Exchange. Promotions to and demotions from the index take place quarterly in March, June, September and December. This Index is calculated in real-time and published every minute.
- The FTSE All-Share Index, originally known as the FTSE Actuaries All Share Index, is a capitalisation-weighted index, comprising around 1000 of more than 2,000 companies traded on the London Stock Exchange. As at June 2011 the constituents of this index totalled 627 companies (source FTSE All Share fact sheet). It aims to represent at least 98% of the full capital value of all UK companies that qualify as eligible for inclusion. The index base date is 10 April 1962 with a base level of 100.
Newspapers divide their share price listings into Industry classifications which makes it easy to find the company you are looking for and to compare its share price with the share prices of other companies in the sector. Example of typical sectors are:
- Food & Beverages
- Mining etc
The following data is usually quoted:
The various column headings mean:
Name – Name of the Company as quoted on the London Stock Exchange
Share Price – This column shows the mid price at closing time on the previous day’s trading. So, if at the close of business yesterday, you could have bought the shares at 130 and sold them at 120, the price in the newspaper would be 125 (halfway between the spread) and this is known as the mid price. If the mid price has xd (ex dividend) after it, it means that the company has recently announced a dividend but if you buy the shares now you won’t be entitled to receive it (the seller will).
Chg. – This shows the change in the share price since the previous trading day.
52 Week High/Low – This column shows the highest price the share has traded at, and the lowest price it has traded at in the current year.
P/E – This commonly used ratio is calculated by dividing the current share price by the company’s earnings per share (see below note) in the most recent trading year. For example, if earnings (profits) per share are 25p and the share price is 400p, the P/E ratio is 16 (400/25).
Earnings per share (EPS) is a commonly used phrase in the financial world. Earnings per share represents a portion of a company’s profit that is allocated to one ordinary share. Therefore, if you were to multiply the EPS by the total number of ordinary shares a company has issued, you would calculate the company’s net profit.
Vol. – The volume of shares traded on the FTSE the previous day in £000s.
M. Cap. – The market capitalisation is calculated by multiplying the number of shares in issue by the share price. This column shows the sum figure in £ millions.
Div. – The amount (in pence) of the most recent dividend paid to Ordinary Shareholders.
There are two types of shareholders:
Preference Shareholders are paid a fixed dividend. However, they do not have rights on voting in AGM (Annual General Meeting). So as their name implies the preference shareholders fixed dividend takes preference over the payment of a dividend to the ordinary shareholders.
Ordinary shareholders are paid their dividend after the company has paid the preference share dividend. The shareholders of ordinary shares have the right to vote in AGMs.
Div. Cov. – The earnings per share divided by the dividend per ordinary share. So, if the earnings per share were 24p and the dividend per share was 8p,the dividend cover is 3. This tells you how many times over the amount being paid out as a dividend is covered by profits.
Yield – This shows the percentage return on the share. It is calculated by dividing the dividend by the current share price. So if a share is trading at 200p and its annual gross dividend is 15p, the dividend yield is (15/200 x 100) = 7.5%. The higher the dividend yield, the more income each Shareholder receives.
So, data quoted could look as follows:
FTSE 100 Index:
We often hear about this on the News etc but what exactly is it?
The FTSE 100 Index, also called FTSE 100, FTSE, or, informally, the “footsie” is a share index of the 100 companies (sometimes called ‘Blue Chip companies) listed on the London Stock Exchange with the highest market capitalization. It is one of the most widely used stock indices and is seen as a gauge of business prosperity. The index is maintained by the FTSE Group, a subsidiary of the London Stock Exange Group.
The index began on 3 January 1984 at the base level of 1000. The highest value reached to date is 6950.6, on 30 December 1999. After falling during the financial crisis of 2007-2010 to below 3500 in March 2009, the index recovered to a peak of 6091.33 on 8 February 2011.
It currently stands at around 6,620.
I hope IAB readers have found this informative.
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