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Capital Market

All Formulas:

The theoretical value of the subscription right:


SR =

MPIP
N
+1
n

Where:

SR theoretical value of the subscription right


MP market price
IP issue price
N number of old shares
n number of new shares
N/n=s subscription ratio

Application 1:
One shareholder
Solution:

Answer:

The assignment right:


AR = PWhere:

AR assignment right
P price of old shares
N number of old shares
n number of new shares

PN
N +n

Pn
N +n

Undesirable effects of increasing capital for old

shareholders:
Nr.

Form of dilution

Computing
relationship
CD = IV0 IVt
IVt < IV0

Capital Dilution (CD)

Diluted earnings per


share (Diluted EPS)

DEPS = EPS0
- EPSt

Dilution of voting right


(DVR)

DRV =
RV t

IV 0
PC 1
N 0+n

PC 0
N0

SC 0+ SC 1+ LR
N 0 +n

EPS 0

EPS t

SC 0+ LR
N0

RV 0

Interpretation
The right of old
shareholders on issuers
assets decrease with DC
The right of old
shareholders to dividends
payment decrease with
investment yield
The right to vote of a
shareholder decrease if it
maintain the same number
of shares

IV t

;
Pnet 0
N0 ;

Pnet t
N 0+ n ;

Pnet 0

= FRR* PC 0 ;

Pnet t

FRR* PC 1 ;
RV 0
Nos
100
;
N 0+ n

Nos
100
;
N0

RV t

Where:
0 express the basic moment/period
t the period after capital increase
IV intrinsic value
SC equity capital of issuer
LR legal reserves established by the issuer
PC own capital of issuer
N0
number of shares issued by the JSC at basic moment

n - number of new shares issued by the JSC


No.s. - number of shares held by an own shareholder
EPS earnings per share
Pnet net profit
FRR financial rate of return
RV Voting right

Evaluation of primary ownership securities

Nominal value:
NV =

SC
N

Where:
NV nominal value
SC social capital
N number of issued shares
Application:

Accounting value of one stock:


AV =
Where:

An
N

AV - Accounting value
An Net Asset
N total number of issued & outstanding stocks
Net Asset is represented by one part from the companys asset that is not
affected by its debts. An = At Dt
Where:
An total debts
At total(real) assets
Dt total debts

Intrinsic value:
IV =

Anc
N

Where:
IV intrinsic value
Anc corrected net asset
N number of outstanding stocks

IV =

PC
N

SC+ LR
N

Where:
SC social capital
LR legal reserves created by the issuer
CP own capital created from social capital (SC) and legal reserves (LR)
N - number of issued and outstanding stocks

Return value:

Vf=

DPS
AIR

Where:
Vf

financial value

DPS distributed dividend per one stock


AIR average interest rate on the market

Yield value
V y=

BPS
AIR

Where:
VY

yield value

BPS earnings per share (net profit per stock)


AIR average interest rate on the market

Issue value:
IP = NV + ip
Where:
IP issue price
NV nominal value
ip issue premium

Earnings(profit) per

share 2

EPS =

Pn
N

Where:
EPS profit per share
Pn net profit (gross profit minus income tax)
N total number of shares on market

Divident per share:


DPS =

Dt
N

Where:
DPS dividend per share
Dt total value of dividends (net profit distributed as dividends (NPr))
N - number of stocks on market

Rate of dividend distribution:


d=

Dn
100
Pn

Where:
d - rate of dividend distribution
Pn net profit
Dn - net dividends calculated after income tax payment on dividends
calculated according to relation:
Dn =
D(1-T)
Where:
T dividend tax rate
Application:
According to Victoriabank JSCs report for 2015 year, it shared dividends
amounting to 15 000 000 lei, and the net profit obtained was about 73 324
142 lei. Determine the rate of dividend distribution and to conclude the right
thoughts about JSLs dividend policy.

Solution:
Dn
100
Pn

d=

15 000 000

=> 73 324 142 100

= 20,45

Answer: The rate of dividend distribution of Victoriabank JSL is 20,45%


Conclusion: The rate of dividend distribution tends to 0.

Return on share:
R=

D+C 1C0
100
C0

Where:
R - return on share:
D distributed dividend for one share
C1
rate of stock sale
C0

rate of stock purchase

Application:
An investor bought 120 stock from Victoriabank JSC, at the beginning of
2015 year, at the rate of 105 lei per stock. In that year, JSC shared a dividend
in size of 1,15 lei per share. At the end of the year, the investor sold stock on
the market price with 133 lei. Which will be the yield obtained by the
investor?
Solution:
R=

D+C 1C0
100
C0

=>

1,15+133105
100
105

= 27,76

Answer: The yield obtained by the investor for that transaction was 27,76 %,
the idea is that for each leu invested, he gained 0,27lei profit.

Price Earning Ratio:

PER =

Rate
EPS

Where:
PER price earning ratio
Rate stock rate
EPS earnings(stock) per stock
Application:
In 2015 at the Moldova Stock Exchange, the stocks of Fincombank JSC they
were trading at the rate of 123 lei per stock. According to JSCs report, for the
same period, it obtained a profit per stock in size of 5,02 lei. Which is the
value of PER coefficient and motivate the decisions of investor actions of
buying or selling that stocks.
Solution:
Rate
EPS

PER =

=>

123
5,02

= 24,5

Answer: The value of PER coefficient is 24,5. The observation is that is


slightly raised thats why the rational action is to sell these stocks

Dividend yield:
div=

DPS
100
Rate

Where:
div dividend per yield
DPS dividend per stock
Rate average stock exchange rate of share
Application:
If in 2015 at the Moldova Stock Exchange, the stocks of Fincombank JSC
they were trading at the rate of 115 lei per stock. According to JSC, for the
same period of time, it distributed a dividend with the size of 1,05 lei. Its

known that one div for one stock of Moldova Agroindbank JSC for the
same period was 0,70 %. Which companies stocks are more advantageous
for investition, depending on dividend yield?
Solution:
div=

DPS
100
Rate

=>

1,05
100 =0,91
115

Answer: It is more efficient to invest in Fincombank JSC s stocks, because


it has bigger dividend yield that another bank (0,91% > 0,70%).

Return on invested capital:


RIC =

DPS
NV

* 100%

Where:
RIC return on invested capital
DPS dividend per stock
NV nominal value

Expected future dividends:

V =
i=1

Di
(1+ k)i

Where:
V theoretical value of one stock
Di
dividends at I moment of time
k return rate required by shareholders

Return expected by shareholders:


k = g+

D1
Rate

Where:
kg-

Stock exchange capitalization of issuer:


Where: