A1UFR Seminar 3

Equity & Liabilities

SEMINAR 3
EQUITY & LIABILTIES
Exercise 1 – Exercise 2 – Exercise 3

Exercise 1 – Raising and Changing Equity Capital

Make explicit any reasonable assumptions you deem necessary to answer the question.
The Eolian Group (TEG) AB is a listed company that operates a chain of gastropubs with live
music.
The company is considering two types of issues during 2021.
Prior to any issue, the nominal value is 100, and the market value is 150.

𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
Nominal Value = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 (Share Capital: Restricted Equity)

The first option is a new share issue with the terms: N 3:4, price 115 %

1. Explain the specific terms of the new share issue

3:4 @ 115%
4: Number of Old shares
- Number of subscription rights needed to gain one new share
3: Number of New shares
- Number of subscription rights that one old share is allotted
115%: Relationship to Nominal Value
- 115 must be paid for each and every new share
(In total 115 x 3 = 345)

2. If the quoted share price is 150 SEK prior to the new issue then what would be the
calculated new share price after the shares issue, all else being equal*?

(4 x 150) + (3 x 115) 945

= = 135
7 7

As new shares are issued, there will be a new share price after the share issue
- That reflects how share price/value has changed
(As long as the price of the new shares differs from the nominal value)

The second option is for The Eolian Group to perform a bonus issue during 2021, with the
following terms: 1:4

3. Explain the specific terms of the bonus issue? Why is there no quoted issuance price for
the bonus issue?
1:4
4: Number of Old shares
- Number of subscription rights needed to gain one new share
1: Number of New shares
- Number of subscription rights that one old share is allotted
There is no quoted issuance price for the bonus issue – Because the shareholders do not need to pay to
receive the bonus issues
Taking place: Transformation (Reclassification) of Retained Earnings (Unrestricted Equity) to Share
Capital (Restricted Equity)
Motive: To increase the ratio between Restricted Equity and Unrestricted Equity in order to show
creditors that the financing of the business is stable to ensure creditors to lend money

4. If the quoted share price is 150 SEK prior to the bonus issue then what would be the
calculated new share price after the bonus issue, all else being equal*?
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Equity & Liabilities

(4 𝑥 150)+(1 𝑥 0) 600
= = 120
5 5

As new shares are issued, there will be a new share price after the share issue
- That reflects how share price/value has changed
(As long as the price of the new shares differs from the nominal value)

5. If The Eolian Group is planning on expanding its operations through acquisitions of

independent gastropubs, should the company perform a new share issue or a bonus issue?
Why?
If the company seeks to expand its operations through acquisitions of other companies, the company
could perform both a New Share Issue and a Bonus Issue.
With a New Share Issue new capital is raised.
With a Bonus Issue new capital can be borrowed from creditors.
And, with this new capital, the new assets can be required, in both cases.

Exercise 2 – Dividend Policy

The question of listed companies’ dividend policy and practice has in recent years been the topic
of public debate.
Some commentators have argued that shareholders have the right to a dividend if the company has
turned a profit the year before since shareholders have provided the company with risk capital.
Comment on this claim from an accounting perspective.
Equity = The residual belongings to the shareholder
Liabilities = Present obligations
Three Claims:
Shareholders have the right to a dividend
Since there exists no contractual agreement between the Company and the Shareholders, the
Shareholders have no right to receive, and the Company have no obligation to pay, dividends.

If the company has turned a profit the year before

That the company has turned a profit before does not necessarily imply that they have positive
Retained Earnings and are able to pay dividends, since profit/loss from previous years also affects
whether the Retained Earnings are positive or negative
The company must also, in order to be able to pay dividends, have cash at hand, which is not ensured

Since Shareholders have provided the company with risk capital

The only time a shareholder provides risk capital to a company is when shareholders and potential
shareholders participate in New Share Issues
The capital that the shareholders provide is part of the Share Capital which is Restricted Equity and
therefore not provide risk capital to the Company
Shareholders also have to vote for dividend payments at Annual General Meetings

Exercise 3 – Matching Financial Reports & Companies

On the following page, there are seven anonymized balance sheets that are listed from largest to
smallest relative size (starting from the left-hand column A => G).
Based on this information about the relative size of items on their respective balance sheet,
match the company with its balance sheet.
Make sure that you can justify your choice based on the content and structure of each balance
sheet, and how the accounting information reflects the operations of the company in question.

The seven companies (in alphabetical order) are:

AFRY: A management consulting company that was formed in 2019 through the combination
of ÅF of Sweden and Pöyry of Finland.
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Equity & Liabilities

Atlas Copco: An industrial company that sells compressors, vacuum solutions, generators,
pumps, power tools and assembly systems.

Axfood: A food retail group whose brands include Willys, Hemköp and Urban Deli.

Boliden: A mining company that operates mines and smelters to extract and process base and
precious metals.

Saab: An industrial company that develops, manufactures, and sells products and services
used for military defence and civil security purposes.

Stora Enso: A forestry and manufacturing company that develops and produces products
(e.g., paper, packaging, wooden construction) based on wood and biomass.

Vattenfall: An energy company that owns and operates power plants in Northern Europe and
the UK.

A – Vattenfall
- Large Total Assets
- Large part Machinery & Equipment
- Small part Inventories & WIP
B – Stora Enso
- Large Total Assets
- Large part Buildings & Land (Fair Value)
C – Saab
- Large part Inventories & WIP
D – AFRY
- Large Part Goodwill & Other Intangible Assets
- Small part Buildings & Land and Machinery & Equipment
- Small part Inventories & WIP
E – Atlas Copco
- Small part Buildings & Land and Machinery & Equipment
(Process of Elimination)
F – Boliden
- Small Total Assets
- Large part Buildings & Land
- Large part Inventory & WIP
G – Axfood
- Small Total Assets
- Large part Buildings & Land
- Small part Inventories & WIP