Finance & Financial Management Individual Assignment

FINANCE
AND
FINANCIAL
MANAGEMENT
Contents

INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
PART 1............................................................................................................................................3
1.a Give brief explanation of two chosen companies:.................................................................3
1.b Compute mean, standard deviation and variance of monthly returns of two stocks
separately:....................................................................................................................................4
1.c Provide comments on results recorded and provide related suggestions:..............................5
2.a Calculation of Portfolio risk and return in different case scenario:.......................................5
2.b Plotting of the results considering individual results and portfolio results in the graphical
manner:........................................................................................................................................6
2.c The Efficient frontier point of both the securities:.................................................................6
2.d Calculation of Minimum variance portfolio along with optimal weights at which return
will be higher:..............................................................................................................................7
2.e Suggestion to the investor on selection of the Stock and advise them if the assets are
available to the investor:..............................................................................................................8
Part 2................................................................................................................................................8
1. Calculation of investor required rate of return on Tesco shares:.............................................8
2.Calculation of Tesco Equity value using dividend discount model:........................................9
3. Comparison between market value and value as calculated above:......................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
The report prepared as under takes in account Finance and Financial management related
activities & operations in two different companies dealing in same sector such as groceries. The
companies taken into consideration are Tesco and Sainsbury which concentrate on serving best
qualitative goods to its customers over a certain point of time. The report prepared as under
focuses on collection of stock related data for a time span of five years. It also computes Mean,
standard deviation and variance for specific data sorted and put at one place. It further provides
guidance for evaluating the performance being served by business over a period of time.
Therefore, one can compare results and outputs being calculated for a stated point and finding
ways that would contribute in improving the present outcome keeping future prospects in mind.
There are methods such as Dividend discount model and total pay-out methods which are
adapted for carrying out comparisons and understanding how the company can improve its
efficiency over the time frame (Oosterlee and Grzelak, 2019).
TASK
PART 1
1.a Give brief explanation of two chosen companies:
 SAINSBURY: It is an organisation that is considered as second largest chain in
supermarkets located in United Kingdom. It further provides offering in products such as
home wares, qualitative food, electrical and convenient shopping as well. It has many
brands taken under consideration such as Nectar, Sainsbury bank, Habitat, Argos. It
makes use of various strategies for serving customer the best among available choices
and provide maximum satisfaction as well. There are many competitors of Sainsbury
such as Asda, Aldi and Lidl too. It further targets the remote areas & location and rural
areas as well in specific territories where it is facilitating its operational work (Hillier,
2019).
 TESCO: It is a well-known company over the globe that deals in groceries since 1919. Its
business is headquartered in Welwyn garden city, England. It has extended its operations
in various areas apart from groceries such as furniture, financial services, internet
services, telecom, software and electronics as well. It serves several opportunities which
can be explained as employment related prospects as well. It has also covered countries

such as Indonesia, South Korea and turkey for improving the level of revenue, income
and profits as well. It is counted among businesses which give access to gain better
suppliers for running and functioning of company. It further helps in managing liquidity
which mirrors that shareholders are able to carry out buying and selling of shares in an
easier manner when compared with others (Rashid and et.al., 2018).
1.b Compute mean, standard deviation and variance of monthly returns of two stocks separately:
 Mean: It can be explained as easy computation of mathematical average of a combination
of two or more values. It is calculated for measuring the centre of a data set prepared in
numerical form. Mean is based on all interpretations and observations. There are different
kind of mean such as weighted mean, geometric mean, arithmetic mean or harmonic
mean. Mean result recorded for Tesco company is 27% whereas in case of Sainsbury it
gave an output of 38%.
 Standard deviation: It can be calculated such as square root of variance. In finance, it is
often helpful for measuring a related risk involved in an asset. It measures how much
individual data set varies from the average of a set of data. In business management
related application such as standard deviation is helpful in computation of margin of error
if any in way of customer satisfaction related surveys, the volatility of stock rates and
more. It provides a more detailed picture as in what ways data and information is being
dispersed. Extreme values have lesser effect (Cumming, Verdoliva, and Zhan, 2021). It is
a measure of risk which an investment would be observing to fluctuate from its recorded
expected return. Standard deviation reflected a figure of 6.6486 in case of Tesco
company whereas in Sainsbury it recorded a value of 7.60307. Thus it can be concluded
that Tesco has less reliability when compared to Sainsbury as it records relatively less
amount in comparison to other.
 Variance: It can be described as a measure of the spread among the values in a dataset.
Investors take help of such methods for seeking and analysing related risk carried by an
investment activity and if it would prove to be fruitful as well as profitable. It is also
useful for facilitating comparison of relative performance of each acquired asset present
in a portfolio for achieving the best asset allocated. It also helps to understand how well
mean is representing an entire set of data, higher the variance more are the chances of
range to exist within the set developed. Variance recorded in case of Tesco company is