Introduction to Finance

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Assignment guide lines.

 

You have to the assignment based on following companies.

 

  1. BHP Billiton Limited
    2.JB Hi-Fi Limited

 

3 Calculation of Performance Ratios
4

 

Identify any significant factor which may have influenced the share price of your company.
 

5

 

Your companies’ beta values and expected Rates of Return using the Capital Asset Pricing Model.
 

6

Using the gearing ratios for your company over the past two (2017 and 2016) years, emphasise any improvement towards the maintenance of a preferred optimal capital structure.
 

7

Dividend Policy
   

 

QUESTIONS

You are an investment adviser, working to build a foundation of wealth for your clients. One of your wealthiest clients already has a diversified portfolio, which includes managed funds, property; cash/fixed interest and a few direct share investments. They wish to expand their portfolio and are considering one of two companies’ shares to add to their portfolio.  (They have an extra $1 million that they wish to invest into company shares.)  The companies, which you will compare and examine, are those selected in by you and must be reported to your lecturer in Class #3.

 

  1. BHP Billiton Limited
    2.JB Hi-Fi Limited

 

 

Written Report and analysis of the firms performance (including referencing)

 

You are required to do the following:

  1. Calculate the following key ratios for BOTH of your selected companies for the past 4 years. Annual reports are accessible via company websites (show all working out):
  2. Return on Assets (EBIT)        =       (NPAT / Total Assets)

Return on Owners Equity = (Net Profit after Tax / Owners Equity)

Gearing Ratio          =         Total Liabilities / Total Assets

 

EBIT    x          NPAT  x          TA       =          NPAT

TA                  EBIT               OE                    OE

 

Be sure that you have “proven” the above equation.            

15 marks

  1. Explain what phenomenon is being “captured” by the variable TA/OE, and how it is impacting on the relationship between Return on Assets and Return on Owners Equity.

3 marks

Be sure to explain why the ROE (EBIT) is significantly greater than or less than the ROA (EBIT).

4 marks

 

  1. Research via the internet or financial/business publications
    1. From research via the internet (using credible sources) or financial/business publications, note any significant announcements which may have influenced the share price of your company. These factors could include merger activities, divestitures, changes in management’s earnings forecasts, changes in analysts’ forecasts, unusual write-offs or abnormal items, macroeconomic factors, industry wide factors, significant management changes, changes in the focus of the company, impact of competitors or law suits (Restrict the number of announcements to 5).

10marks

  1. Go on-line to http://www.reuters.com/finance/stocks/ and type in the code for your company into the Search Stocks field and click on the magnifying glass button.

 

  1. What is their calculated beta for your company?

2 marks

  1. If the risk free rate is 4% and the market Risk Premium is 6%, use the Capital Asset Pricing Model to calculate the required rate of return for the companies’

4 marks

  • Is the company you and your partner have chosen a “conservative” investment? Explain your answer.

2 marks

  1. Consider the gearing ratios for your company over the past two years:

 

  1. Does it appear to be working towards the maintenance of a preferred optimal capital structure? (i.e., does it appear to be “stable”?)     Explain your answer.

3 marks

  1. What have they done to adjust / amend their gearing ratio? Increase or repay borrowings?  Issue or buy back shares?  Has the Director’s Report given any information as to why they have made any adjustments?

6 marks

  1. Dividend policy
    1. Discuss what the dividend policy of the management of the company appears to be. Explain fully.

3 marks

  1. Based on your analysis above, write a letter of recommendation to your client, providing an explanation as why you would like to include this company in their investment portfolio. Please refer to the ratio results calculated earlier and any other trends or factors that you believe to be important.

10 marks

  1. Formal structure and referencing

APA Style.                                                                                                        4 marks

 

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