European Regional Development Fund

Platform algorithms

1.    Financial Statements Data

1.1    Source

The source is the published financial statements published by the issuer. The comparative figures shown in the financial statements are ignored even if the comparative figures have been restated or reclassified.

Only consolidated figures are captured.

1.2    Order

The system allocates a common order to the items of financial statements which may be different to the order applied in some financial statements. Such standardised order enables comparability of financial statements.

1.3    Aggregation of line items in the financial statements

Some immaterial items may at times be aggregated.

2.    Exchange rate conversions

2.1 Source

The exchange rates applied are the middle rates provided by the feed of the European Central Bank on http://www.ecb.int/stats/exchange/eurofxref/html/index.en.html.

2.2 Currency conversion

The system converts the figures of the income statement by applying the applicable average rate for the period covered. The figures of the statement of financial position (i.e. balance sheet) and the cash flow statement are converted by the system by applying the rate applicable on the last day of the reporting period.

3. Comparable data

The system compares financial statements of different companies by allowing the user to express the data published in the financial statements as a percentage of Weighted Average Equity of the respective company.

3.1 Computation of the Weighted Average Equity

The Weighted Average Equity is computed by taking the average of the opening and closing total equity of the company. Equity captures all shareholders’ funds as presented on the face of the financial statements of the company and typically includes share capital, share premium, retained earnings and general reserves.

In addition, the algorithm takes into consideration any changes in the company’s capital base through the issue or redemption of share capital by applying time-weights to such movement in capital.

Example:

Opening equity as at 1 Jan 10             EUR 1,000
Profit for the year                               EUR    500
Injection of capital on 1 Oct 10            EUR    500
Closing equity as at 31 Dec 10            EUR 2,000

a.    Weighted average equity injected is EUR 125 (EUR 500 x 3m / 12)
b.    Average equity for the year (ignoring the capital injection) is EUR 1,250 ((EUR 2,000 [closing equity] – EUR 500 [equity injected] + EUR 1,000 [opening equity]) / 2)
c.    Weighted average equity for the year is EUR 1,375 (EUR 125 + EUR 1250)

4. Comparison of financial statements of different companies

4.1 Averages

User may select more than one financial period when comparing the financial statements of different companies, i.e. user can compare the average of the last 5 years of Co X against the average of the last 5 year of Co Y. In this case, the system will compute the simple average for each item of the financial periods selected and will display such data accordingly.

5. Trading data (e.g. share price and volume data)

5.1 Source

The source is the daily feeds provided by the Malta Stock Exchange.

5.2 Comparable share price

The system allows user to view the actual share price history. At times it is difficult to obtain information by analysing at the actual share price history since certain corporate actions (e.g. the issue of bonus and rights issues) change the value of the traded share price without necessarily affecting the financial performance of the company.

The system therefore allows the user to view the share price history clean from such corporate actions by effectively expressing the history of the market capitalisation of the company over the number of outstanding shares as at today.

The comparable share price is calculated using the following formula:

((Closing Pricet x outstanding sharest) + Summation of equity injected(n-t))
                                 Outstanding shares in issuet

where t = time
         n = most recent day

5.3 Volume in the MSE index chart

The platform counts the number of shares traded in equities that are quoted on the Official list. The result is captured in the volume part of the MSE Index chart.

6. Weighted Average Financial Statements

Users may compare the weighted average banking financial statements or the weighted average MSE index financial statements to the financial statements of a particular company. The weighted average financial statements are a function of (1) the published financial statements issued by the repsective companies and (2) the weight each company contributes to the pool that constitutes the MSE Index or the banking industry in Malta.

6.1 The weighted average bank financial statements

The weighted average bank financial statmenets is computed with reference to all the local credit institutions entered in the blackdigits database. These include both listed and unlisted credit institutions.

6.2 The weighted average MSE index financial statements

The weighted average MSE index financial statements is computed with reference to the listed companies that form part of the MSE index.

6.3 Methodology

The calculation of the weighted average financial statements was based on the following:

6.3.1    The weighted average financial statements are based on a calendar year basis.

6.3.2    Financial statements whose year-end does not fall on 31 December are attributed to the calendar year in which the financial period ends, i.e. the financial statements with a period ending on 30 September 2010 will be attributed to the 2010 average financial statements.

6.3.3    If a company extends its financial year-end and as a consequence skips a calendar year (e.g. a company whose financial period ended 31 December 2011 is extended to 30 June 2012 will not have a financial period ending in calendar year 2011). In this case, the weighted average financial statements for 2011 will ignore such company.

6.3.4    Weights are applied by reference to the weighted average equity of the respective company (as determined in section 3.1 above).

6.3.5    If the weighted average equity is denominated in a currency other than Euro, the weighted average equity is converted into Euros using the average exchange rate for the financial period of the company.

6.3.6    When the company reports its financial statements in a currency other than Euro, the items of the Income Statement are converted using the average exchange rate for the period and the items of the statement of financial position (i.e. balance sheet) are converted at the rate applicable on the last day of the reporting period.

6.3.7    For the purposes of calculating the weighted average MSE index financial statements, a company is taken into consideration in the year it is listed. The full year figures are taken into consideration even if the period between the listing date and the end of that calendar year is less than one calendar year.

7. Financial ratios

Blackdigits.com.mt displays a number of financial ratios. Some are captured from the financial statements and displayed tale quale and others are computed by the system.

The ratios calculated by the system are computed for each financial period. In addition, the system computes ratios that are a function of a share price on an ongoing basis. E.g., the dividend yield is calculated for each financial period by taking into consideration the interim and final dividend paid over that financial period divided by the market capitalisation of the listed company as at the end of the financial  year. The dividend yield is also computed on an ongoing basis by expressing the dividend paid during the prior 12 months over the current market capitalisation of the company.

7.1    Earnings per share (EPS)

The EPS is captured from the financial statements of the company and reproduced on blackdigits.com.mt tale quale. It refers to earnings generated from both continued and discontinued operations divided by the weighted average number of shares.

7.2    Non-performing loans as a percentage of total loans

This is a ratio computed by the credit institutions themselves and published in their annual report. This ratio is captured and reproduced on blackdigits.com.mt tale quale.

7.3    Provisions as a percentage of total investments   

The ratio is calculated by dividing provisions (if any) take on the company’s investments over the value of total investment portfolio.

7.4    Leverage ratio

In other words, this is the gearing ratio and it gives an indication of the method by which the company finances its assets.

The leverage ratio for credit institutions is computed by expressing total assets over Tier 1 capital ratio. For insurance companies, the leverage ratio is computed by expressing total assets over equity. For non-financial companies, the leverage ratio is computed by expressing total debt over equity.

7.5    NIM/interest income

This ratio is computed for credit institutions only. The function expresses net interest income over interest income and gives an indication on the spread that the credit institution is earning.

7.6    P/E ratio

This ratio is a measure of the price paid for a share relative to the the level of earnings. This ratio expresses market capitalisation of the company at the end of the financial period divided by the profit attributable to shareholders for that financial year.

7.6.1 Ongoing P/E ratio

The system also calculates the P/E ratio by expressing the current market capitalisation of the company over the profit attributable to shareholders (disclosed in the latest set of published accounts). In the event that the P/E ratio is calculated for a set of interim financial statements, the P/E ratio is annualised.

7.7    Cost to income ratio

The cost to income ratio is a measure of efficiency and is computed only for credit institutions. The ratio is calculated by expressing operating expenses (incl. administrative expenses, employee compensation and benefits and other administrative expenses) over total operating income.

7.8    Return on total assets

This is an indication of the profit earned on every euro of assets and is an indication of the yield that the assets are earning. This ratio is computed only for credit institutions and is calculated by expressing profit after tax over total assets.

7.9    Loan to deposit ratio

This ratio is computed only for credit institutions and is calculated by expressing loans to customers over deposits taken from customers.

7.10    NAV/share

This ratio is calculated by expressing the equity of the company (but excluding Non-Controlling Interest) over the number of ordinary shares in issue. In theory, this represents the amount attributable to each share if the company is wound up. However, the balance sheet typically does not disclose assets at their market value (many times the historic cost less depreciation is taken), so the net asset value may be different to the actual proceeds a shareholder would receive during liquidation.

7.11    Earnings Yield

The earnings yield is the inverse of the P/E ratio and is calculated by expressing profit attributable to shareholders over the market capitalisation of the company. The earnings yield gives an indication of the value generated by the company as a percentage of the amount that is required to be paid to acquire such earnings. The earnings yield is a benchmark that enables investors to compare it to the earnings generated by other equities and other asset classes (e.g. a bank deposit, a bond etc).

7.12    ROE

This is an indication of profitability of the capital employed by the company. The ratio is derived by expressing profit after tax over equity.

7.13    Dividend payout ratio

This ratio gives an indication of how well earnings support dividend payments and also provides information on the sustainability of the current dividend payments. The ratio is derived by expressing dividend (both interim and final) over the earnings attributable to shareholders. A result which exceeds 1 means that the company is distributing more dividend than the level of profits it generated.

7.14    Price/NAV

The Price/NAV ratio shows the company's share price to the net asset (or book) value per share. It shows how much investors are prepared to pay per EUR1 of net assets. The ratio is derived by expressing the share price over NAV per share.

(The NAV per share is Equity excluding Non Controlling Interest divided by number of shares.)

7.15    Dividend yield (net)

This represents the dividend paid over a financial period (net of taxes and includes the interim and final dividend for that given period even if the final dividend is approved at the AGM) expressed over the market capitalisation of the company at the end of the financial period.

7.15.1  Ongoing dividend yield (net)
       
The system also calculates an ongoing dividend yield in the company dashboard page. The ratios is derived by expressing the dividends paid over the last 12 months over the current market capitalisation of the company. 

When a dividend is declared or proposed to shareholders and the payment dividend in this case is  in the future, the 12 month period runs between:

    (i) the date when the dividend will be paid/ is being proposed to be paid (e.g. Board on 26 October proposes to pay the dividend on 20 December); and
    (ii) 12 moths before (i) above.

7.16    Trading liquidity indicator

This is a liquidity indicator developed by the operator of blackdigits.com.mt. The liquidity ratio tracks equities only and measures the liquidity of the instrument. The ratio is derived by expressing the number of deals executed for a given security over a given financial year divided by the number of deals made in all the shares listed on the Malta Stock Exchange over the same period.

7.16.1  Ongoing trading liquidity indicator
       
The system also calculates the trading liquidity of the security on an ongoing basis and displays it in the company dashboard page. The indicator is derived by expressing the number of deals executed for a given security over the last 12 months divided by the number of deals made in all the shares listed on the Malta Stock Exchange over the same last 12 months.

7.17    Interest coverage ratio

This is a measure of the extent to which a company's operating profits cover the interest paid on its debt. It is calculated by expressing earnings before interest and tax over interest expense.

7.18    Solvency ratio

This is a ratio relevant to the insurance sector alone and is a measure of the company's ability to meet long-term obligations. The solvency ratio measures the size of a company's after-tax income, excluding non-cash depreciation expenses, as compared to the firm's total debt obligations. It provides a measurement of how likely a company will be to continue meeting its debt obligations.

The measure is usually calculated as follows:          Profit after tax + Depreciation
                                                                                       Total Liabilities

7.19    Tier 1 capital

Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view. The ratio is captured from the financial statements and is reproduced tale quale.

7.20    Tier 1 capital ratio

The Tier 1 capital ratio is the ratio of a bank's core equity capital to its total risk-weighted assets (RWA). 

The ratio is captured from the financial statements (if available) and is reproduced tale quale. However this ratio is rarely published and in such cases, the system derives the Tier 1 Capital ratio by expressing Tier 1 Capital over risk-weighed assets. Risk-weighted assets are also rarely disclosed but these are derived by dividing Own Funds by the capital adequacy ratio.

7.21    Liquidity ratio

This is a regulatory ratio and is maintained by credit institutions. It is a measure of the ability of the credit institution to pay its short term-term debt obligations. The ratio is captured from the financial statements (if available) and is reproduced tale quale. 

Whenever the financial statements disclose the liquidity ratio as at the end of the financial period and also the average liquidity ratio for that financial period, the liquidity ratio as at the end of the financial year end is captured.

7.22    Loss ratio

The loss ratio is relevant to the insurance sector alone. It is derived by adding the total losses paid by an insurance company in the form of claims together with any adjustment expenses and then divided the sum by the total earned premiums. The ratio is captured from the financial statements (if available) and is reproduced tale quale.

7.23     Bond / Earnings Yield

Yield to Maturity (of the company's bond with the longest maturity) over the Earnings Yield of the company. A result greater than 1 generally implies that the share price is overvalued  while a result substantially less than 1 indicates the opposite, or that the bond yields are not adequately pricing risk.

In the case when the company has subordinate debt in issue, the Yield to Maturity of the subordinate debt with the longest maturity is taken. When the earnings yield is negative, this function is not computed. In Finance this ratio is commonly referred to as the Bond Equity Earnings Yield Ratio or the 'BEER.'