1. 1 ShareScope How investors evaluate company performance Tim Clarke General Manager, ShareScope

2. 2 Stock markets Initial Public Offering Ltd v Plc Share ownership Control Accounts / reporting Money-raising Cost

3. 3 Investing Superior returns Fund management Growth, Value, Income, Momentum

4. Your share of profits Yield / interest rate Dividend reinvestment Compounding 4 Dividends

5. Einstein described compound returns as the “eighth wonder of the world”. 5 Dividends

6. 6 Compounding Bob’s Grocery Stores Plc Share price 100pHolding period 30 years Dividend 4pShare price remains unchanged Value of shares£10001000 x 100p Income received£12004p x 1000 x 30yrs Investment value£2200£1000 + £1200 Annual income£401000 x 4p Yield on cost4%4p / 100p

7. 7 Compounding Initial value of shares£10001000 x 100p Income received£0Dividends reinvested Final value of shares£32433243 x 100p Annual income in year 30£1303243 x 4p Yield on cost13%13p / 100p Bob’s Grocery Stores Plc Share price 100pHolding period 30 years Dividend 4pShare price remains unchanged

8. 8 Compounding Initial value of shares£33251000 x 332.5p Income received£0Dividends reinvested Final value of shares£69,335 Annual income in year 30£2754 Yield on cost83%£2754/ £3325 British American Tobacco Plc (BATS) 2 nd Jan 2000Share price = 332.5pDividend = 22.2p 2 nd Jan 2015Share price = 3522pDividend = 144.9p

9. 9 Dividend Yield

10. 10 Private Investors Merchant Banks / Fund Managers Stockbrokers SELL SIDEBUY SIDE Stock Market Structure of the market

11. Market capitalisation Share price x No. Shares e.g. Tesco Plc Share price = 219.25p No. Shares= 8,123,000,000 Market cap.= £17,809,677,500

12. 12 Profits/earnings

13. 13 Profits/earnings

14. EPS = Earnings per Share 14 Profitability

15. 15 Profitability

16. 16 Profitability

17. 17 Minefield Continuous operations GAAP Exceptional items Practical considerations

18. 18 Profitability

19. 19 P/E = Market cap / Value Price EPS

20. 20 Price/Earnings Ratio

21. 21 Price/Earnings Ratio

22. 22 Price/Earnings Ratio

23. 23 PEG = PE / Earnings Growth PEG

24. 24 Cash Flow & Liquidity

25. 25 Dividend cover

26. 26 Dividend cover

27. OM = Operating Profit / Turnover (Sales) 27 Operating Margin

28. 28 Balance Sheet

29. 29 Debt Gearing = Debt / Shareholder funds

30. 30 Returns Return on capital employed (ROCE) Profit / Shareholder equity & Total borrowing

31. 31 Returns

32. 32 Returns

33. 33 Problems with EPS Share buybacks Debt instead of equity

34. 34 Discount/Premium to NAV

35. 35 Discount/Premium to NAV

36. 36 Discount/Premium to NTAV

37. 37 City Expectations

38. 38 City Expectations

39. 39 City Expectations

40. 40 City Expectations -16%

41. 41 Was Tesco a good investment?

42. 42 Stock Screening Search the stock market Use understanding of financial metrics to find attractive investment opportunities Criteria to use depend on the type of investor you are

43. 43 Growth - Warren Buffett Capitalisation above £250m Exclude property stocks Below average PE in subsector EPS has increased in four out of the last five years Operating margin is trending upwards Net gearing below 100% Interest cover of 1.5 or more Cash flow higher than EPS ROCE of at least 12% for last three years ROCE trending upwards over last three years Ideally above average in sub-sector for most of PE, ROCE, Op margin, Net Gearing, Price to cash flow Stock Screening