Linear Regression Analysis Example

This assignment focuses on understanding and interpreting the output of a linear regression analysis. The provided data includes multiple metrics such as R-squared, adjusted R-squared, standard error, and ANOVA results. Additionally, the coefficients for the intercept and X Variable 1 are presented with their respective standard errors, t-statistics, p-values, and confidence intervals. Students need to analyze these values to draw conclusions about the relationship between the independent variable (X Variable 1) and the dependent variable.

Running Head: Corporate Finance
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Project Report: corporate Finance

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Executive Summary
This report paper depict about the performance of the Computershare. Technical
analysis study has been done over the Computershare to analyze the market condition of the
company and the investment opportunity in the company. In this report, share price of last 5
years of company has been taken into the context to perform this study. Further, WACC of
the company has been calculated. And for WACC, cost of equity and cost of capital has also
been calculated over the company. Further, gearing ratios have also been calculated to
analyze the capitals structure of the company. Lastly, recommendation has been given for the
better management of the funds of the company.

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Contents
Introduction.......................................................................................................................4
Company overview...........................................................................................................4
Calculation of WACC.......................................................................................................4
Return on equity...........................................................................................................4
DDM (Dividend discount model).................................................................................4
CAPM Model................................................................................................................4
Return on debt...............................................................................................................5
Beta Coefficients..........................................................................................................5
Risk free rate.................................................................................................................5
Growth rate...................................................................................................................5
Weighted average cost of capital..................................................................................5
Calculation of gearing ratios and Difficulties in calculating the gearing ratios...............6
Findings............................................................................................................................6
Recommendation and conclusion.....................................................................................7
Reflection:.........................................................................................................................7
References.........................................................................................................................8
Appendix...........................................................................................................................9

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Introduction:
Investors must analyze the market efficiently before analyzing their amount into that
security and the market. There are mainly 2 ways to calculate the performance of the security
and a company which are technical analysis and fundamental analysis. In this report,
technical analysis study has been performed over the Computershare limited to analyze the
performance of the company and the capital structure of the company. Through this report, it
has been found that from which Source Company must enhance the funds so that the cost of
capital of the company could be reduced and risk mitigation could also be done.
Company overview:
Computershare limited is an Australian public company which has been registered
into the ASX (Australian stock exchange). It is an Australian stock transfer company which
offers corporate trust, employee share plan and stock transfer services in numerous countries.
20 offices are currently owned by the company including Australia, Ireland, United States,
United Kingdom, Canada etc. this company has been founded in 1978 at Australia. Head
office of Computershare is at Yarra falls, Victoria, Australia (Computershare, 2017)
Calculation of WACC:
Return on equity:
Return on equity (ROE) is an evaluation technique which is used to examine the
profitability position of a firm in context of shareholder equity’s book value. This evaluation
is mostly done to investigate the firm’s functions concerning that how the firm uses its
amount and investments to enhance the growth in company’s earning.
For measuring the ROE (return on equity) of Computershare, DDM and CAPM
methods have been analyzed. Calculations of both methods are as follows:
DDM (Dividend discount model):
Dividend discount model (DDM) explains that the ROE of the Computershare is
4.09%. It explains that the firm would offer 4.09% of net profits to stockholders of the
company (Morningstar, 2017).
CAPM Model:

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Capital asset pricing model (CAPM) explains that the ROE of the Computershare is
2.45%. It explains that the firm would offer 2.45% of net profits to stockholders of the
company (Morningstar, 2017).
Return on debt:
Return on debt (Kd) is an evaluation technique which is used to examine the
profitability position of a firm in context of debt’s book value. This evaluation is mostly done
to investigate the firm’s functions concerning that how the firm uses its amount and debts to
enhance the growth in company’s earnings (Reuters, 2017).
Beta Coefficients:
Study of beta coefficient over Computershare expresses that the company’s beta is
0.1633 from last 5 years (Yahoo finance, 2017). The graph of beta coefficient of index return
and Computershare return has been given below.
0.00%
200.00%
400.00%
600.00%
800.00%
1000.00%
1200.00%
Beta
Beta
Risk free rate:
Further, Australia’s risk free rate (Rf) is 2.75% of 10 years (Bloomberg, 2017).
Growth rate:
In addition, Growth rate of Computershare’s stock has been investigated and found
that current growth rate of Computershare is 4% (yahoo finance, 2017).
Weighted average cost of capital:

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WACC estimations of the Computershare express about the total equity and debt cost
of capital. Currently the WACC of the company is 0.01225 while measuring the total cost of
capital, Ke and Kd of the firm has been identified. The Ke and Kd of the company is 2.454%
and 0.15%. Consequently, the weight is 0.65 and 0.34 of debt and equity respectively. So, the
total Ke and Kd is 0.01127 and 0.00098 (Yahoo finance, 2017).
Calculation of gearing ratios and Difficulties in calculating the gearing
ratios:
Gearing ratio is a financial ratio that offers a brief classification of company’s assets
and liabilities. These classifications compare the equity and debt of the company. Calculation
of gearing ratio of Computershare depict that the gearing ratio is 0.65554. This depict that the
debt and equity relationship of the company is 0.655:1 (Morningstar, 2017).
While measuring the gearing ratios of the company, not any particular difficulties
have been faced by the company. Entire data related to calculation has easily received from
the annual report, Morningstar and yahoo finance. And the formulas have been studied from
the books. So it was quite easy to calculate the gearing ratio (Strebulaev, 2007).
Findings:
Capital structure theory is referred to a systematic approach which is useful for
managing and financing the business activities. Capital structure theory explores the
association of debt financing; equity financing and firm’s market value. In this technique, the
growth of the company is analyzed according to the different source of funds. In this study,
WACC of the company is 0.01225 while measuring the total cost of capital, Ke and Kd of the
firm has been identified. The Ke and Kd of the company is 2.454% and 0.15%.
Consequently, the weight is 0.65 and 0.34 of debt and equity respectively. So, the total Ke
and Kd is 0.01127 and 0.00098.
.

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Debt
66%
Equity
34%
Capital Structure
Recommendation and conclusion:
Through the above study over Computershare, it has been analyzed that the
Computershare’s gearing ratio and total cost of capital are quite competitive. It has been
found that the debt and equity ratio of the company is perfect and the cost of capital of the
company is also lower. The cost of debt is lower than the cost of equity. Consequently, the
weight of debt in the company is higher than the equity of the company. Company is just
required to mitigate the risk as the debt part in the company is more than the equity part.
Reflection:
I have performed this study to analyze the stock performance of the computer share. I
have found this study very interesting. In this report, every aspect such as beta, return on
equity, return on debt, market return etc has been analyzed and on the basis of that, WACC of
the Computershare has been analyzed. Further, the study of gearing ratios has been done
according to the data from annual report and Morningstar. This report depict about the
performance of Computershare and through this report, it has been found that company is just
required to enhance the funds from equity to manage the risk. Cost of capital is quite
competitive.

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References:
Bloomberg. (2017). Australian bonds and rates. https://www.bloomberg.com/markets/rates-
bonds/government-bonds/australia on 19th Sept 2017.
Morningstar. (2017). Computershare limited. Viewed from
http://financials.morningstar.com/balance-sheet/bs.html?
t=CMSQF&region=usa&culture=en-US on 19th Sept 2017.
Reuters. (2017). Computershare limited. Viewed from
http://www.reuters.com/finance/stocks/overview?symbol=CPU.AX on 19th Sept 2017.
Strebulaev, I. A. (2007). Do tests of capital structure theory mean what they say?. The
Journal of Finance, 62(4), 1747-1787.
Computershare. (2017). Home. Viewed from http://www.computershares.com.au/ on 19th
Sept 2017.
Yahoo Finance. (2017). Computershare limited. Viewed from
https://in.finance.yahoo.com/quote/CPU.AX/history?
period1=1309458600&period2=1467225000&interval=1mo&filter=history&frequency
=1mo on 19th Sept 2017.

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Appendix:
Dividend Discount Model
Dividend expected 0.009371783
Growth rate 4%
Price per share 10.254118
cost of equity 4.09%
Calculation of WACC
Price Cost
Weigh
t WACC
Debt 2809 0.0015 0.6557
0.0009
8
Equity 1475
0.0327
3 0.3443
0.0112
7
4284 Cost of capital
0.0122
5
Calculation of cost of debt
Outstanding debt 2809
interest rate 6
Tax rate 0.3
Kd 0.15%
Calculation of CAPM
RF 2.75%
RM 0.94%
Beta
0.1633
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Required rate of return 2.454%
Gearing ratio= Long term Liabilities/ capital
employed
Capital Employed = Total assets- current liabilities
Calculation of Gearing ratio
Long term liabilities 2809
Current liabilities 1072

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Total assets 5357
Gearing Ratio 0.65554
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.12175
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R Square
0.01482
5
Adjusted R
Square
-
0.00309
Standard
Error
0.06894
5
Observation
s 57
ANOVA
df SS MS F
Significa
nce F
Regression 1 0.003934
0.003
934
0.827
665 0.366918
Residual 55 0.261436
0.004
753
Total 56 0.26537
Coeffici
ents
Standard
Error t Stat
P-
value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept
0.00871
1 0.009298
0.936
913
0.352
899 -0.00992
0.0273
44 -0.00992
0.02734
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X Variable 1
0.16334
5 0.179547
0.909
761
0.366
918 -0.19648
0.5231
64 -0.19648
0.52316
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