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August 23, 2018 at 7:07 am
Thank you a million for these great lectures, I really appreciate it from my heart.If you were here in Jamaica I would have certainly find you and give you a big hug…Your lectures are more than helpful as I didn’t understand Financial Management. Thank you again.
John Moffat says
August 23, 2018 at 4:43 pm
Thank you very much for your comment 🙂
August 23, 2018 at 9:19 pm
Pleasure Sir. Blessings.
September 30, 2018 at 7:40 pm
I love you John, i like your example whe when giving exapmle on real life example,your UK example is LIT.Thank you so much sir,blessings.
October 1, 2018 at 6:51 am
Thank you for the comment 🙂
April 5, 2018 at 5:33 am
Thank you for these great lectures on Business Finance. They are extremely helpful.
April 5, 2018 at 6:55 am
You are welcome, and thank you for your comment 🙂
February 18, 2018 at 6:33 pm
Thanks for your good lecture as always.
Does interest payment being accounted for financial gearing also be included in fixed costs for calculating the operating gearing.
If I am not wrong fixed cost in the statement of profit or loss include 1. lease payment 2. Rents 3. Debt interest 4. Fixed salaries and so on
February 19, 2018 at 5:08 am
Interest payments are not included in operational gearing. It is fixed costs incurred in operations – eg rent
February 19, 2018 at 9:03 am
What about the financial lease payment? is it included in the financial gearing or it will be included in the fixed costs for operations like operating lease.
February 19, 2018 at 5:17 pm
If it were an operating lease (i.e. effectively renting) then it would be included in operating gearing.
If it were a finance lease (but this is not likely in the exam) then it would be treated instead as part of the financial gearing.
February 20, 2018 at 4:35 pm
Thanks Sir, you are perfect and usual!
February 21, 2018 at 10:09 am
You are welcome 🙂
August 22, 2017 at 8:14 am
Sir, Why is that in the calculation of operating gear we only taking variable cost?( Sales – variable cost (contribution)) Why we are not taking fixed cost?
August 22, 2017 at 8:33 am
Because as I explain with the illustration, it is the level of fixed costs relative to the variable costs (and therefore the contribution) that is causing the risk.
August 24, 2017 at 9:33 am
Thanks for making it clear again! Between I really liked the example that you mentioned, it really made the concept so easy.
November 4, 2016 at 4:56 pm
In the calculation of P/E ratio, we assume that it will take 16 years for the investor to get back his investment based on current earnings.
But isn’t certain part of the earnings retained? Wont the investors only receive dividends?
November 4, 2016 at 6:10 pm
Yes, but it is earnings that give rise to dividends. Either a company has low retention and therefore pays high dividends but there will be little growth in dividends; or, alternatively, a company will have high retention and therefore pay lower dividends but there will be growth in dividends. (This is explained and illustrated in Chapter 17 of our free lecture notes).
That is why, when comparing companies, that looking at the dividends does not mean much (because they might have different dividend policies) and therefore why PE’s are more useful in practice.
September 30, 2016 at 2:40 am
Could you please show out the meanings / the logics of each ratio because I still didn’t get its meanings.
Thank you very much.
September 30, 2016 at 12:13 pm
Maybe watching the relevant F3 lectures will help you, because most of the ratios are revision from Paper F3.
June 30, 2016 at 8:54 am
Really clear lecture. Thanks for all!
May 21, 2016 at 6:20 am
Hi Sir John, That was a great lecture as always.
My problem is you said to the Financial Management Accountant, preference shares are just like any other debt because fixed dividend is paid on it which is just like interest. Why then when calculating Interest Yied, the preference share was not involved and in calculating the other ratios like EPS, P/E etc, it was also left out from equity (shares)? I we then not totally ignoring it now?
May 21, 2016 at 9:14 am
Because interest yield is specifically a measure used for ‘proper’ debt. Also for EPS etc we are looking at the earnings available for equity (ordinary) shares, and this is after subtracting the preference dividend.
May 21, 2016 at 12:47 pm
So the only place we include them is when calculating gearing ratios?
May 21, 2016 at 3:43 pm
Precisely (for the reasons I wrote above).
May 21, 2016 at 9:33 pm
May 22, 2016 at 6:05 am
May 3, 2016 at 6:17 pm
Hello Sir John, thank u for the wonderful lectures. If investors are prepared to pay more in the hope that the company does better and eventually have more earnings in future, won’t the MV of shares not go up as well? So, in a sense the PE will not reduce so much? Unless, rate of increase of earnings is much more than rate of increase of MV. So, will it be correct if we compare PE for a long period of time, say for 5 years instead of only 2 years.
May 3, 2016 at 6:34 pm
You are correct in saying that the MV will go up if investors expect that the company will do better in the future.
However the PE’s that are quoted in the newspapers (and used in the exams) only look at the current earnings and current share price.
February 8, 2016 at 7:18 pm
Please I am a bit confused. Is that there won’t be any solution for Example 3 as I came across a question on operating gearing in a past question paper.
February 9, 2016 at 8:44 am
There is a solution!
Solutions to all of the examples are in the free lecture notes – look at the contents page.
August 21, 2015 at 7:31 pm
Thanks for making things so easy for me. here’s a point, I am bit confused on:
The P/E Ratio above, you said it’s 83/5.2=15.96
but shouldn’t it be 0.83/5.2= 0.15 times or 15.96% or it should always be in percentage?
August 22, 2015 at 9:22 am
It is not a % – it is always just a number.
The market value is 15.96 time the earnings.
(Price is 83c; EPS is 5.2c. So PE is 15.96.)
August 22, 2015 at 10:16 am
Oh yes got it. Many thanks John!
June 2, 2015 at 2:09 pm
Can we say that Dividend yield and interest yield is the cost of equity and cost of debt respectively?
May 16, 2015 at 1:04 am
Hi sir I’ve a question A company can maximise its value by adopting a capital structure that minimises it’s weighted average cost of capital .could you please explain whether or not such an optimal capital structure exists for a company. Many thx
May 16, 2015 at 10:05 am
In practice yes – because the WACC stands to change as the gearing changes.
In theory (according to Modigliani and Miller) then without tax the WACC will not change and so there is no such thing as optimal gearing; but with tax then there is an optimal – they should be as highly geared as possible because this will reduce the WACC. I do explain and illustrate this in the lectures.
(M&M may not work perfectly in practice because of the various assumptions they made, which do not all hold true because things don’t work perfectly in real life)
May 17, 2015 at 10:19 pm
Thanks a lot sir
May 18, 2015 at 9:27 am
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