Equity Part 2

Quick reference

• 00:05 Let's continue with equity than.
• 00:07 We're now in the cash flow statement and
• 00:09 we've done most of the case flow statement.
• 00:12 What we've got left to do is the equity issuance, buybacks and dividends paid.
• 00:17 So without further ado, let's get modeling.
• 00:21 Now before we consider equity, I want to go somewhere else first of all.
• 00:25 I want to go to the Income Statement and show you just one last look here that you
• 00:30 don't have to take the slide's word for it.
• 00:33 The Income Statement is now finished.
• 00:35 We are, in fact, okay to move on to the Cash Flow Statement.
• 00:39 And not cash flow statement, all the net operating cash flow is done,
• 00:43 all the investing cash flow statement is done and
• 00:47 in financing still got three lines to go.
• 00:51 We gotta go ordinary equity issuance's, ordinary equity buybacks and
• 00:55 dividends paid.
• 00:56 That is return off equity or return off capital, and
• 01:00 return on equity or return on capital.
• 01:03 That's what we're got to do.
• 01:04 Remember we always do the return of capital first because
• 01:08 it may be that has something to do with how the actual return on is calculated.
• 01:13 Now in this case equity issuances and
• 01:15 buybacks on the Assumption sheet, are just actually typed in numbers.
• 01:19 And that is often how it is with issuance's and buybacks.
• 01:21 It's a case of it takes so long to actually get the financing, you can't just
• 01:25 draw down more equity when you're running short, this is what's debts for instead.
• 01:30 And buy backs can be difficult too.
• 01:33 The dividend as well often has nothing to do with the issuance's and buybacks but
• 01:38 it's actually more to do with the number of shares which isn't always captured
• 01:41 in a financial model.
• 01:41 And is often computed instead on a dividend payout ratio but
• 01:45 more on that next time.
• 01:46 Let's look at the return of equity, first of all.
• 01:49 Let's put that Calculation through on this first session.
• 01:53 So I've brought in the issuances and buybacks.
• 01:55 I've put in here the closing equity from the opening balance sheet.
• 02:01 So the opening equity is the previous period's balance as always.
• 02:06 Are you bored of this yet?
• 02:07 And this is going to sum those rows there, so copy.
• 02:10 So far, so good.
• 02:17 The equity issuance's, this is just like the debt that we did before isn't it?
• 02:20 Equals that and that equals minus that.
• 02:23 Done.
• 02:24 Copy across.
• 02:27 Just got to make sure it's all styled as a number so we got the brackets.
• 02:31 This is why we should always remember about the styling.
• 02:35 We've done our first control account.
• 02:36 We've done the return of equity control account.
• 02:39 And that's all we'll look at this time out.
• 02:41 So how many lines are there?
• 02:42 There's four.
• 02:43 Four minus one, three.
• 02:45 That's how many calculations we've got to put through our financial statements to
• 02:48 get it to balance.
• 02:49 And look, nothing more to do with the income statement.
• 02:52 The drawdowns and repayments, called issuance's and buybacks when it's
• 02:56 equity goes through the cash flow statement, the financing section.
• 02:59 And the closing equity balance is the balance sheet.
• 03:02 Income statement's finished,
• 03:03 this is why we're doing it in the order we're doing it in.
• 03:06 Hopefully it's all starting to come together.
• 03:07 Hopefully you can see it's making sense.
• 03:10 All right, let's go and put these through in the Cash Flow Statement then.
• 03:14 So equals back to the Calculation sheet.
• 03:17 Put that number in first, then we'll copy that across
• 03:23 and we'll also copy it down and copy that across.
• 03:26 That's our drawdowns and repayments called issuance's and
• 03:29 buybacks in the correct vernacular.
• 03:32 And we've got a balance sheet not balancing.
• 03:35 But if we now go to our Balance Sheet and
• 03:37 put in our ordinary equity, the top of the equity section here.
• 03:41 Equals, go to our Calculation sheet, put this in, copy that across.
• 03:48 It balances.
• 03:50 We've done the first two equity control accounts, return of equity.
• 03:55 Next time out, we're going to do return on equity.
• 03:57 And we're finally gonna get rid of that dividends declared work in progress,
• 04:01 which we had right at the beginning.

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