# The valuation of securities (part a)

 View all ACCA Paper F9 lectures >> This ACCA F9 lecture is based on OpenTuition course notes, view or download lecture notes here>>

1. says

hello sir

i was just looking at the papers and came across this question; TKQ Co has just paid a dividend of 21 cents per share and its share price one year ago was \$3·10 per share. The
total shareholder return for the year was 19·7%.

Im confused as none of the formulas work on this , can you please clarify

• says

It is not using a formula from the formula sheet.

The shareholder return for the year is the dividend plus the increase in market value, as a percentage of the market value.

So the total return here is 19.7% x 3.10 = 0.61.
Sine the dividend is 0.21, the market value must have increased by 0.40.

2. says

Hi John,
I am a little confused between e.g #2 and #4 which basically asked the same question and obviously had the same answer. I am trying to understand your explanation about using the present value to find the market value in #4. Was this to show the two ways of getting the same answer?

• says

I don’t understand why you are confused.

If you have finished the lecture you will realise that usually we simply use the formula that is given in the exam. However, given that 50% of the exam is writing as opposed to arithmetic, it is desperately important that you understand the logic behind what we are doing and the premise that the market value is the present value of future expected dividends.

• says

okay! understood! Thanks!

3. says

June 2008 past paper Ques 2 (d)
The P/E ratio of 7.5 is used to determine the Present Value of \$720,000 of the after-tax savings (96,000 x 7.5 = \$720,000).
How is it possible to use the P/E ratio to determine the present value? I think i understand “why” we use it, i just didn’t realize the P/E ratio could be used to determine the PV.

I apologize for asking this question here but i couldn’t find the Ask the Tutor page.

• says

He should not have used the term present value. The P/E ratio does not replace discounting and does not give a present value in that sense.

What he means is that the value of a share (using the P/E approach) will be the EPS x P/E ratio.

So……if the earnings increase the the market value increases.

(PS To find the Ask the Tutor forums, click on ‘forums’ on the bar at the top of this page, and then click on ‘Ask ACCA Tutor’. Then you will get a list of the Ask the Tutor forums for each paper)

• says

Okay, got it now. Thanks very much for your help. You’re a wonderful tutor, you always make things so easy to understand. (and thanks also for the link information)

4. says

Mr John, I have got a question – Why is that when we have a question that includes shares at par of say 25c we have to divide the share by 0. 25 in order to turn it into a \$1 share? (to calculate rights issue for example) and then we want to include the shares in the balance sheet, we multiply by 0.25 in order to turn it again to a share of 0.25c!

Sorry if this is a dumb question, this point always confuses me, I have no idea why do we need the share to be a \$1 share? Why not just perform our calculations on a 25c share?

Thanks,

Maha

• says

We do perform our calculations on 25c if that is the nominal value.

What I am guessing you are confusing it with is that quite often in questions you are told the total nominal value of the shares (an extract from the Statement of Financial Position) and we need the number of shares.
So…..if the nominal value is 25c a share and the SOFP figure for share capital is \$100M, then \$100M is the total nominal value of all the shares and so there must be 400M shares of 25c.

We never turn them into \$1 shares – ever

• says

I see, lol! It was a dumb question !!

Thank you Mr John.

Hoping to pass!

Maha

• says

The videos are all working fine – the problem must be at your end.
Have you looked at the technical support page? You will likely find support for your device there.

5. says

Why is it only the future expected dividend that effects the theoretical value of the share price? Why wouldn’t the expected capital gain of the share be a consideration too for instance? Thanks.

• says

In theory, it is the expected dividends that affect the share price. If the dividends are expected to grow, then over time the share price will grow (and therefore we have a capital gain). However the only reason for the capital gain is because of increased expectation of dividends. (All in theory, obviously )

• says

I see! Thanks for explaining that for me.

6. says

Could you help me understand why share prices on the stock exchange keep changing every day but for the same companies? for sure I know that dividends from what we have learned is a factor but not paid daily I guess and so is interest rate.

• says

The share price is based on what investors expect in the future.
So although dividends are a factor, it is expected future dividends.

News about the company comes out all the time (and also about the state of the economy – which affects companies).

If there is news that makes investors expect the company will do better in the future, then they will be prepared to pay more for the shares – and so the share price will increase.
If there is news that makes investors expect that the company will do worse in the future, then the share price will fall.

• says

Very clear. Awesome!!! Thanks alot

7. says

how could i see the book in which the tutor solve example or understanding..pleas guid

• says

If you look above the video, it says that the lectures are based on our Course Notes!!! You can download them on this website.

8. says

Does the lecture have mobile phone version? Like hw many megabytes do I need to have b/4 watching the lecture whether on phone or laptop computer?

9. says

if there is any chance of me passing my ACCA papers it’s all due to this amazing website…. the lecturers are just superb and everything they say is engrained into our brains..

• says

@umair112, i am studying F9 from BPP study text and the notes provided here on opentuition.

10. says

This lecture has really helped me to understand rather than just cramming formulars to the exam

11. says

this particular lecture keeps stopping and stare ting, been here since 7am and I’ve not even made it half way the lecture. All other lectures are top notch.