Chương 2. Equity (1) PTĐTCK FTU Cô Hà Phương

PTĐTCK FTU

1. SECURITIES ANALYSIS AND INVESTMENT
Lecturer: Pham Ha Phuong, MSc
Department: Faculty of Banking and Finance
Email: [email protected]
Course materials: bit.ly/3IS9Kf3

2. CHAPTER 2:
EQUITY (1)

3. 3
Contents
1.Overview
2.Share issuance
3.Characteristics
4.Risk and return
5.Firm value
6.Cost of capital

4. 4
1. Overview

5. 5
1. Overview

6. 6
1. Overview

7. 7
2. Share issuance
Relative size of
financing

8. 8
2. Share issuance
Registration and
disclosure
requirements?

9. 9
2. Share issuance

10. 10
2. Share issuance
•Initial public offering (IPO)
•Direct listing
•Acquisition (merger vs reverse merger)

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2. Share issuance

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3. Characteristics
•Common shares
•Preference shares
•Private equity
•Non-domestic shares

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3.1. Common shares
•Voting right
▪Statutory voting
▪Cumulative voting
•Proxy voting
•Class
•Options in shares
▪Callable common share
▪Puttable common share08-guidelines-for-elections-at-the-agm-2020-637268850416081739.pdf

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3.1. Common shares
Law on
Enterprises

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3.2. Preference shares
•Cumulative dividend share
•Non-cumulative dividend share
•No voting right
▪Convertible preference shares
•Share of company’s performance
▪Participating
▪Non-participating

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3.3. Private equity
•Non-listed
•Venture capital: “seed”/ startup/ mezzanine financing to early stage
•A leverage buyout (LBO): a group of investors used a large amount of debt
to purchase all shares of public company => make company private or
restructuring => target is high asset value or strong cash flow
•Private Investment in Public Company (PIPE): public company in distress
(high level of debt, high need for capital) might do private placement to sell
large ownership stake at discount price
=> long term & high risk; small but growth market

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Venture capital

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LBO & MU
•Key figures
•Value “lockout”
•Cash cow
•PIK Loans

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LBO & MU
Read more:
https://www.theguardian.com/football/2021/may/02/timeline-glazers-and-their-turbulent-reign-at-
manchester-united
https://www.theguardian.com/football/2025/may/12/the-glazers-manchester-united-football-
finance
https://www.nytimes.com/athletic/4845377/2023/10/18/glazers-man-utd-debt-dividends/
https://www.nytimes.com/athletic/2934815/2021/11/05/explained-manchester-united-the-glazers-
and-660m-of-debt/?login=facebook&auth=login-facebook

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3.4. Non-domestic equity
•Direct investing
•Depository receipt
▪Depository bank
▪Sponsored vs Unsponsored

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3.4. Non-domestic equity
Depository receipt:
•Global Depository Receipt (GDR)
•American Depository Receipt (ADR)
•Global Registered Share (GRS)
•Basket of Listed Depository Receipt (BLDR)

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3.4. Non-domestic equity

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3.4. Non-domestic equity

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4. Risk & Return
•Dividend yield
•Capital gain
•Foreign exchange gains/losses (from depository receipts
or foreign shares)

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FINANCIAL OBLIGATIONS
Law on
Bankruptcy

28. 28
•Cash flow uncertainty
•Preference share risk < common share risk
•Puttable < non-option < callable
4. Risk & Return

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4. Rủi ro

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5. Company value
•The ultimate goal of management
•Management can directly change book value
•Management can only indirectly change market value
=> Accounting ROE

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5. Company value
Return on equity (ROE):
•The primary measure that equity investors use to determine whether the
management of a company is effectively and efficiently using the capital
they have provided to generate profits.
•Computed as net income available to ordinary shareholders (i.e., after
preferred dividends have been deducted) divided by the average total book
value of equity (BVE).

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Whether an increasing ROE is always good?
•(1) net income increases at a faster rate than shareholders’ equity or
(2) net income decreases at a slower rate than shareholders’ equity
•company issues debt and then uses the proceeds to repurchase some
of its outstanding shares = increase the company’s leverage and make
its equity riskier
Examine the source of changes
Using DuPont formula
5. Company value

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6. Cost of capital
•Market capitalization:
•Price/Book ratio: compare market valuation to company accounting
value of book (equity)

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Example 1: Return on equity?

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Solution

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Example 2: Market to book ratio?

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•Cost of debt
•Cost of equity
=> Estimated by?
•WACC: weighted average cost of capital
6. Cost of capital

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