Company Accounts and Financial Statement Analysis
This domain combines limited-company accounting under the Maltese Companies Act and IFRS/GAPSME with ratio-based interpretation, including the limitations of those ratios.
Share capital transactions
- Issue at a premium: nominal amount to share capital, the excess to share premium, which is non-distributable.
- Bonus issue: free shares from reserves; no cash is raised; total equity is unchanged and the number of shares rises.
- Rights issue: cash is raised, but the price is below market, so the issue contains a bonus element.
- Dividends: proposed dividends are not a liability at the reporting date; recognise them when approved.
Worked example
A company has 4,000,000 €1 shares and a market price of €3.00. It makes a 1-for-4 rights issue at €2.40. New shares: 1,000,000; cash raised €2,400,000, giving share capital +€1,000,000 and share premium +€1,400,000. Theoretical ex-rights price = (4 × €3.00 + €2.40) ÷ 5 = €2.88. Prior-year EPS is restated by the bonus factor 3.00/2.88 = 1.0417, and the weighted average share count rises from 4m to 5m from the issue date.
Analysis toolkit
- ROCE = operating profit ÷ capital employed; decompose into operating margin × asset turnover.
- Gearing = debt ÷ (debt + equity) or debt ÷ equity; interest cover = operating profit ÷ finance cost.
- Liquidity: current ratio, quick ratio, receivable and inventory days.
- Investor: EPS, dividend cover, P/E, dividend yield.
Traps that cost marks
- Paying dividends out of share premium or a revaluation reserve.
- Ignoring preference dividends in the EPS numerator.
- Comparing ratios across industries with no adjustment.
- Forgetting the rights-issue restatement of comparative EPS.