Stock Price Analysis and Beta Calculation

This assignment presents a historical dataset of daily stock prices for an unidentified company, spanning from September 30th, 2015 to September 30th, 2017. Students are tasked with analyzing the trends in these prices over time, identifying periods of increase and decrease. Additionally, they must calculate the beta value for this stock, which measures its volatility relative to the overall market. By examining both the price trends and the beta, students can gain insights into the company's performance and risk profile.

Running head: INTRODUCTION TO ACCOUNTING AND FINANCE
Introduction to accounting and finance
Name of the student
Name of the university
Author note

1INTRODUCTION TO ACCOUNTING AND FINANCE
Table of Contents
Executive summary....................................................................................................................2
Introduction................................................................................................................................3
Part I – Debt valuation...............................................................................................................3
Part II –Valuation of shares........................................................................................................5
Part III – Cost of capital.............................................................................................................8
Part – IV – Analysis of market.................................................................................................10
Reference..................................................................................................................................11
Appendix..................................................................................................................................12

2INTRODUCTION TO ACCOUNTING AND FINANCE
Executive summary
The report will discuss financial management of Ziptel Limited. As par the analysis,
the company belongs to the zero debt entities and therefore the cost of equity represents the
cost of capital of the company. The capital cost of the company is computed through the
capital asset pricing model and he report will also analyse the market analysis and peer
comparison of the company through the comparable approach.

3INTRODUCTION TO ACCOUNTING AND FINANCE
Introduction
Ziptel Limited is one of the leading telecommunication companies from Australia.
The main objective of this report is to focus on the debt structure, valuation of shares, and
cost of capital and financial performance of the company. The report will also analyse the
market analysis and peer comparison of the company.
Part I – Debt valuation
1. Short-term and long-term debt of Ziptel
As per the annual report of Ziptel Limited dated 30th June 2016, the amount of short-
term as well as long term debt or borrowing is nil. Various reasons may be there that may
prevent the company in using debt in their capital structure. For instances, the firms from
telecommunication or technological industries are more prejudiced to zero or low debt
structure for capital. This activity is not surprising keeping in mind the uncertainties of the
innovation or technologies. Further, another factor that influences the organization to have nil
debt is the structure of hierarchy and the shareholder’s impact on the company’s decision
making. Though the debt is tax deductible, it is only one part to be considered. There are
other facts too those have the negative effect on the company like shifting of risk. The debt
capital also involves other risks like interest risk, currency risks and the risk of bankruptcy.
Therefore, it may be argued that the nil debt organizations are considered more favourable for
the long term growth aspect.
2. Structure of debt
Ziptel limited is a zero debt entity as for the year closed on 30th June 2016 the
company has zero short term as well as long term debt (Ziptel.com.au 2017).
3. Influence of the industry
Generally the telecommunication entities are engaged in the capital-intensive projects
and they require huge amount even before they start providing services to the customers.
Financing through debts requires the company to pay regular interest periodically which may
create burden on the company at the initial stages. On the other, hand, equity capital is to be
repaid only when the company earns profit. Therefore, the reason behind Ziptel’s zero debt
structure may be owing to the characteristics of telecommunication industry.

4INTRODUCTION TO ACCOUNTING AND FINANCE
4. Cost of debt
As the company does not have any debt in its capital structure for the year closed on
30th June 2016, the cost of debt is nil.

5INTRODUCTION TO ACCOUNTING AND FINANCE
Part II –Valuation of shares
1. Cost of equity of the company
Cost of equity (ke) = Rf + β (Rm – Rf)
Where,
Β = Beta = -0.8467
Rf = Risk free rate = 2.76%
Rm = Market risk premium = 5.50%
Thus, ke = 2.76 – 0.8467 (5.50 – 2.76) = 0.44%
2. Analysis of the financial performance
Revenue – it is recognized from the financial statement of the company that the revenue for
the year closed on 30th June 2016 were increased by 53% as compared to the previous year.
The figure of revenue as on 30th June 2016 was $ 762,388 whereas the same was $ 498,981 as
on 30th June 2015 and on 30th June 2014 the revenue was $ 570 thousand. Therefore, the
revenue of the company significantly went up compared to the previous two years
(Ziptel.com.au 2017).
Earnings – for the accounting year 2016, the company recorded loss amounting to $
14,009,805. The loss for 2015 accounting year amounted to $ 56,87,639 and 2014 was $
2,445 thousands. The reason behind the loss was major investment in new platform and the
acquisition of Zipt campaigns in the key market segments. Further, a large amount of loss
was attributed to the payments on non-cash shares.
EPS – as the company was not able to generate any positive earnings for the last three years,
its EPS are also negative for 2014, 2015 and 2016. The EPS for the year 2014 was -8.81, for
2015 was -8.21 and for the year 2016 the EPS was -17.21 (Ziptel.com.au 2017).
Dividend – the company did not pay any dividend for the past 5 years.
Growth expectation –

6INTRODUCTION TO ACCOUNTING AND FINANCE
The company as well the Australian telecommunication industry is expecting the
bottom line growth to make it double in future years and a triple digit figure for the growth in
the earnings (Valta, 2016).
Over all the industry, growth rate is stagnant and to maintain the profitability level
there is the only way that is curtailing the cost. During the last few years, the
telecommunication industry experienced a negative growth at -4%, however, Ziptel was
leading at 96% earnings growth over the last years and is expected to perform better in the
coming years.
3. Comparable approach for stock valuation
Under the comparable approach the stock of the company is compared with the
competitors from the same industry using various methods like P/E ratio and dividend growth
model.
P/E approach – this is most common method for comparing the stock of the company with its
competitors. The next year’s data is regarded most appropriate for the purpose of comparison.
However, the current year as well as the last year’s data is also taken into consideration. The
comparison with competitors are shown through following table –
Name of the company P/E 2015 P/E 2016 P/E 2017
Ziptel Limited 0.00 0.00 0.00
Amaysim Australia 19.10 0.00 0.00
Telstra 14.29 15.02 15.20

7INTRODUCTION TO ACCOUNTING AND FINANCE
It can be noticed from the above table that the P/E ratio Ziptel for past, present and
next year is 0.00 whereas the same for Telstra that belongs to the same industry is far better
than Ziptel (InvestSmart 2017).
Dividend growth model – under this the dividend yield of the company with its competitors
are compared for the purpose of stock valuation. The comparison with competitors are
shown through following table –
Name of the company Dividend yield 2015 Dividend yield 2016 Dividend yield 2017
Ziptel Limited 0.00% 0.00% 0.00%
Amaysim Australia 4.57% 0.00% 0.00%
Telstra 7.81 8.22 8.88%
It can be noticed from the above table that the dividend yield of Ziptel for past,
present and next year is 0.00 whereas the same for Telstra that belongs to the same industry is
far better than Ziptel (InvestSmart 2017).
4. From above table, it is identified that the P/E ratio and dividend yield both are nil for
Ziptel. Therefore, it cannot be said which approach is better. However, in general
view the P/E approach is considered better.
5. In addition to the dividend growth and P/E ratio, the market capital, growth aspect,
DPS, EPS and net profit can be considered as crucial for valuation of stock.

8INTRODUCTION TO ACCOUNTING AND FINANCE
Part III – Cost of capital
1. Calculation of WACC
Net debt = Nil
Shareholder’s equity = $ 522,246
Weight of debt = 0%
Weight of equity = 100%
WACC after tax –
WACC = wd (cost of debt after tax) + we (cost of equity)
= [(1-0.30)*(0*0)] + (1.00*0.44)
= 0.44%
2. Tax rate of the company for the calculation of WACC was 30%.
3. Difference between cost of equity and debt
Debts are generally raised from the financial institutions and banks are repayable with
interest at regular period. On the other hand the equity finances are raised from the investors
through issuing the shares and are repaid on the basis of company’s profitability. Further, the
debt involves more risks like credit risk, interest risk and market risk as compared to the
equities (Della Seta, Morellec and Zucchi 2015).
4. Yes, the current liabilities can be included in the cost of capital computation as it is
tax deductible. However, the main disadvantage of the current liability inclusion is in
enhances the risk.
5. While computing the WACC for Ziptel, the major component was equity as the
company did not have any debt component and the capital structure is entirely
comprised of equity only. It states that the company is lower leveraged and it will
attract the investors.
6. Two major investment of the company during the year using the WACC are
investments in the new platform and the acquisition of Zipt campaigns in the key
market segments

9INTRODUCTION TO ACCOUNTING AND FINANCE
7. The company’s capital structure is not consistent with the industry as 1:2 proportion
for debt and equity is considered to be ideal structure whereas the company’s capital
structure is comprised of 100% equity and zero debt.
8. Optimal capital structure is the structure of debt and equity at which the company can
minimise its interest burden and maximise its return.

10INTRODUCTION TO ACCOUNTING AND FINANCE
Part – IV – Analysis of market
1. Company’s financial performance
As analysed by the Simply Wallst the low institutional ownership of the company at
4.77% included the company under the group that are not exposed to the volatility spikes.
Further, as the company is not able to generate positive earnings from last few years, it will
not be a good company from the investor’s prospect.
2. Financial analyst report
The financial analyst is not impressed with the performance of the company as it was
not able to generate positive earning, positive EPS and no dividend was paid to the
shareholders for the last few years. Therefore, no investors will invest their hard earned
money in such company (De Fiore and Uhlig 2015)
I am agreeing with the report of financial analyst as the facts highlighted by the
financial analyst can be conformed from the annual report of the company.
3. The important fact that is required to mention in the report that not only the current
year’s performance is negative, if the past few years performances are also taken into
consideration, the company is not performing well for those years also.
Conclusion and recommendation
It can be concluded from the above discussion that the firms from telecommunication
or technological industries are more prejudiced to zero or low debt structure for capital.
Further, if the performance of Ziptel is considered specifically, it can be recognised that the
company is not earning any positive income from last few years. therefore, the company is
suggested to make some changes in their technologies and arrange the funds through debt.

11INTRODUCTION TO ACCOUNTING AND FINANCE
Reference
De Fiore, F. and Uhlig, H., 2015. Corporate debt structure and the financial crisis. Journal of
Money, credit and Banking, 47(8), pp.1571-1598.
Della Seta, M., Morellec, E. and Zucchi, F., 2015. Debt structure, rollover traps, and default
risk. Working Paper.
InvestSMART. 2017. Ziptel Limited. [online] Available at:
https://www.investsmart.com.au/shares/asx-zpt/ziptel-limited [Accessed 20 Oct. 2017].
Valta, P., 2016. Strategic default, debt structure, and stock returns. Journal of Financial and
Quantitative Analysis, 51(1), pp.197-229.
Ziptel.com.au. 2017. Ziptel Telecommunication. [online] Available at:
https://www.ziptel.com.au/ [Accessed 20 Oct. 2017].

12INTRODUCTION TO ACCOUNTING AND FINANCE
Appendix
Calculation of beta
S&P 500
Date Adj Close Return
01-10-2012 null
01-11-2012 1416.180054
01-12-2012 1426.189941 0.71%
01-01-2013 1498.109985 5.04%
01-02-2013 1514.680054 1.11%
01-03-2013 1569.189941 3.60%
01-04-2013 1597.569946 1.81%
01-05-2013 1630.73999 2.08%
01-06-2013 1606.280029 -1.50%
01-07-2013 1685.72998 4.95%
01-08-2013 1632.969971 -3.13%
01-09-2013 1681.550049 2.97%
01-10-2013 1756.540039 4.46%
01-11-2013 1805.810059 2.80%
01-12-2013 1848.359985 2.36%
01-01-2014 1782.589966 -3.56%
01-02-2014 1859.449951 4.31%
01-03-2014 1872.339966 0.69%
01-04-2014 1883.949951 0.62%
01-05-2014 1923.569946 2.10%
01-06-2014 1960.22998 1.91%
01-07-2014 1930.670044 -1.51%
01-08-2014 2003.369995 3.77%
01-09-2014 1972.290039 -1.55%
01-10-2014 2018.050049 2.32%
01-11-2014 2067.560059 2.45%
01-12-2014 2058.899902 -0.42%
01-01-2015 1994.98999 -3.10%
01-02-2015 2104.5 5.49%
01-03-2015 2067.889893 -1.74%
01-04-2015 2085.51001 0.85%
01-05-2015 2107.389893 1.05%
01-06-2015 2063.110107 -2.10%
01-07-2015 2103.840088 1.97%
01-08-2015 1972.180054 -6.26%
01-09-2015 1920.030029 -2.64%
01-10-2015 2079.360107 8.30%

13INTRODUCTION TO ACCOUNTING AND FINANCE
01-11-2015 2080.409912 0.05%
01-12-2015 2043.939941 -1.75%
01-01-2016 1940.23999 -5.07%
01-02-2016 1932.22998 -0.41%
01-03-2016 2059.73999 6.60%
01-04-2016 2065.300049 0.27%
01-05-2016 2096.949951 1.53%
01-06-2016 2098.860107 0.09%
01-07-2016 2173.600098 3.56%
01-08-2016 2170.949951 -0.12%
01-09-2016 2168.27002 -0.12%
01-10-2016 2126.149902 -1.94%
01-11-2016 2198.810059 3.42%
01-12-2016 2238.830078 1.82%
01-01-2017 2278.870117 1.79%
01-02-2017 2363.639893 3.72%
01-03-2017 2362.719971 -0.04%
01-04-2017 2384.199951 0.91%
01-05-2017 2411.800049 1.16%
01-06-2017 2423.409912 0.48%
01-07-2017 2470.300049 1.93%
01-08-2017 2471.649902 0.05%
01-09-2017 2519.360107 1.93%
01-10-2017 2562.100098 1.70%
ZIPTEL LIMITED
Date
Adj
Close Return
30-09-2012 null
31-10-2012 0.5
30-11-2012 0.5 0.00%
31-12-2012 0.5 0.00%
31-01-2013 0.5 0.00%
28-02-2013 0.5 0.00%
31-03-2013 0.5 0.00%
30-04-2013 0.5 0.00%
31-05-2013 0.5 0.00%
30-06-2013 0.5 0.00%
31-07-2013 0.5 0.00%
31-08-2013 0.5 0.00%
30-09-2013 0.5 0.00%
31-10-2013 0.5 0.00%
30-11-2013 0.5 0.00%

14INTRODUCTION TO ACCOUNTING AND FINANCE
31-12-2013 0.5 0.00%
31-01-2014 0.5 0.00%
28-02-2014 0.5 0.00%
31-03-2014 0.5 0.00%
30-04-2014 0.5 0.00%
31-05-2014 0.5 0.00%
30-06-2014 0.185 -63.00%
31-07-2014 0.16 -13.51%
31-08-2014 0.15 -6.25%
30-09-2014 0.46 206.67%
31-10-2014 0.42 -8.70%
30-11-2014 0.27 -35.71%
31-12-2014 0.49 81.48%
31-01-2015 0.47 -4.08%
28-02-2015 0.5 6.38%
31-03-2015 0.59 18.00%
30-04-2015 0.925 56.78%
31-05-2015 0.77 -16.76%
30-06-2015 0.96 24.68%
31-07-2015 1.08 12.50%
31-08-2015 1.185 9.72%
30-09-2015 0.99 -16.46%
31-10-2015 0.565 -42.93%
30-11-2015 0.5 -11.50%
31-12-2015 0.52 4.00%
31-01-2016 0.475 -8.65%
29-02-2016 0.33 -30.53%
31-03-2016 0.24 -27.27%
30-04-2016 0.225 -6.25%
31-05-2016 0.155 -31.11%
30-06-2016 0.16 3.23%
31-07-2016 0.165 3.13%
31-08-2016 0.16 -3.03%
30-09-2016 0.15 -6.25%
31-10-2016 0.125 -16.67%
30-11-2016 0.12 -4.00%
31-12-2016 0.08 -33.33%
31-01-2017 0.049 -38.75%
28-02-2017 0.026 -46.94%
31-03-2017 0.035 34.62%
30-04-2017 0.025 -28.57%
31-05-2017 0.019 -24.00%
30-06-2017 0.019 0.00%
31-07-2017 0.035 84.21%

15INTRODUCTION TO ACCOUNTING AND FINANCE
31-08-2017 0.017 -51.43%
30-09-2017 0.018 5.88%
Beta = -0.8467