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Adjustment factors

Created:
20 September 2007
Written by:
Jonathan Eley, Robert Ansted

Each week, we list the companies that have recently completed a capital action, and detail the adjustment factor, if any, that needs to be applied following that action. A more complete version of this information is available in each issue of Investors Chronicle, but without the Excel download provided below.

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This week's adjustment factors are as follows:

Company TIDM Capital action Adjustment factor
Argentvive ARGV Consolidation 10
Capita CPI Consolidation 1.03333
Clerkenwell Ventures CRK Consolidation 5
Energy Technique ETQ Consolidation/subdivision 24.999
ScreenFX SFX Consolidation 100
Trio Finance TRIO Consolidation 1.25

We also provide an Excel table for download that summarises every capital action this tax year and the adjustment factor that needs to be applied. This is very useful for calculating capital gains tax. Click here to open the table (or right-click and select 'Save Target As...' to save it to your own PC).

If you monitor your shareholdings via the IC portfolio tool, you can set up content alerts that will notify you if an adjustment factor needs applying. For more on how to do this, see the help guide. To apply the adjustment factor, do the following:

1) Go to your portfolio via the 'MY PORTFOLIO' button.

2) For the holding you wish to adjust, click on 'edit', in the 'Options' column.

3) A list of trades in that company will appear. Click on 'edit' again for the trade(s) that you want to adjust.

4) For each trade, re-enter the 'No. of shares' and 'Trade price' fields as adjusted by the adjustment factor, then click the 'Save Trade' button.

5) When you've finished, click 'view portfolio>>>' to go back to your portfolio

HOW TO USE ADJUSTMENT FACTORS

When companies have capital actions, like share consolidations or rights issues, the share price is often effectively rebased as a consequence. This means that if you own shares in a company that has had a capital action, you may need to adjust the price you initially paid to make sure that, in calculating profits or losses, you are comparing like with like.

For instance, suppose a company has 500 million shares in issue and those shares trade in the market at 5p each. The company's managers decide that such a low share price leads to the company being regarded as a 'penny share', so they decide to do a 10-into-one share consolidation. Instead of 500m shares trading at 5p, they'd have 50m trading at 50p. Now, if you'd bought shares at 5p, and the price becomes 50p after the consolidation, your spreadsheet or portfolio tool will show an enormous profit when in fact the price is effectively the same. You need to apply an adjustment factor to the price and amount of shares you initially bought.

In practice, the nice round numbers in the example above don't always occur, especially because these days, share consolidations often accompany returns of capital to shareholders, and are calibrated to prevent a collapse in the share price on the date the shares start trading without the rights to the capital return (the 'ex date').

That's why our adjustment factors table is so useful. It contains the adjustment factors for every capital action in the current tax year. Simply apply the adjustment factor to the price and amount of shares you own to ensure an accurate calculation of profits or losses.

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