Finance and Investment Australia Analysis 2022

Running head: FINANCE AND INVESTMENT
Finance and Investment
Name of the Student:
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1FINANCE AND INVESTMENT
Table of Contents
Overview..........................................................................................................................................2
Investment Goals and Objectives....................................................................................................2
Strategies..........................................................................................................................................3
Stock Specific Factors.....................................................................................................................6
References........................................................................................................................................9

2FINANCE AND INVESTMENT
Overview
Investment Analysis and Portfolio Construction will be done based on the investment
goals and strategies developed for the investor for a certain period of time. Analysis for the stock
could be well done based on the risk and return profile of investors. The approach that would be
followed for the selection of the stock would be in the form of Top-Down Approach whereby the
key analysis for the economy, industry and then stock specific level would be done for the
construction of the portfolio. Investment in the stock would be done based on the risk and return
profile generated by each of the stock in the trend period analyzed for the stock. The trend period
considered for the purpose of the analysis of the stock is around three-years where the relevant
changes in the stocks in the form of annual return and risk of the stock were taken into
consideration1.
Investment Goals and Objectives
The investment goals and objectives of the investor would be considered as an risk loving
investor having a long-term time period of investment horizon, thereby considering a growth
style approach for the purpose of investment2. In order to follow the growth approach for
investment large cap stocks were selected based on beta values that were having greater than
0.70. In some cases where the stocks were having beta less than 0.50 times and the same would
be taken into consideration for the purpose of selecting the stock based on fundamental values of
the stock.
1 DeFusco, Richard A., et al. Quantitative investment analysis. John Wiley & Sons, 2015.
2 Basilio, Marcio Pereira, et al. "Investment portfolio formation via multicriteria decision aid: a brazilian stock
market study." Journal of Modelling in Management 13.2 (2018): 394-417.

3FINANCE AND INVESTMENT
Strategies
The Growth associated with the Australian industry has been predominately well
whereby the growth of the stocks in the yield to trade has performed or given sound return when
compared with the return generated by the ASX-200 Index that was about 17.83%3. In the three
year of time frame the index has generated around 8.24% of return allowing the investors to
generate a sound return. It is predominantly important to note that the return from the industrial
and resources sector has been one of the significant contributor in the overall return of the market
index. The S&P ASX 200 Industrial generated a return of 16.60% on an yield to trade basis for
the company4. The S&P ASX 200 Resources on the other hand, generated a return of about
22.76% in yield till trade. It is important to note that the inflation rate has consistently been
lower in the year 2019 as compared to the year 2018 where the inflation rate was around 2.1% in
the year 2018 and the same has simultaneously dropped to around 1.6% in the year 20165.
3 "What Is A Top-Down Portfolio?." Smallbusiness.chron.com. N. p., 2019. Web. 19 Sept. 2019.
4 Auer, Benjamin R. "Do socially responsible investment policies add or destroy European stock portfolio value?."
Journal of business ethics 135.2 (2016): 381-397.
5 Dempsey, Mike. INVESTMENT ANALYSIS: An Introduction to Portfolio Theory and Management. Routledge,
2019.

4FINANCE AND INVESTMENT
The drop in the inflation level prevailing in the economy would be helping the company
in terms of the overall costs that are incurred for the purpose of raw materials and other operating
costs that are incurred by the company, Further, more the interest rate prevailing in the
Australian Economy has also fallen considerably which further boosted up the equity market as
companies and organization were able to borrow money at a comparatively lower amount of cost
of capital thereby boosting the profitability levels of the company in terms of lower interest cost
paid by firms. The interest rate in Australian Economy was around 1.25% in the year 2019. It is
crucial to note that the interest rate in the Australian Economy has fallen considerably from
about 2.4% to about 1.25% in the year 2019.

5FINANCE AND INVESTMENT
The GDP growth rate in the Australia has been around 0.3% in the year 2018 and this has
been solely based on the overall economic and business operations that took place in the
Australian Economy. Furthermore, it is important to note that the consensus forecast for the
estimate of GDP growth for the Australian Economy has been around 0.7% for the year 2019.
The key factors on which the growth forecast has been made were solely on the increase in the
household consumption and increase in banking and financial services provided by companies
operating in the Australian Region.

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Stock Specific Factors
There are several stock specific factors based on which the stocks has been selected and
the same are primarily in the field of risk, return, beta and financial ratios. The analysis of the
stock has also been done on the basis of expected return on equity via the CAPM model and the
catual return generated in the three year time frame6.
ANZ Banking Group Ltd: The ANZ Banking Group Ltd has a efficiency ratio of about 50.51%
with a 20.20% contributing as a fee of the total revenue. The reported net interest margin for the
company was around 1.70%. The operating leverage has been comparatively very low for the
company standing at 1.19%. The annual return that was calculated for the stock was around
32.23%, the annual standard deviation for the stock was around 22.82% and beta for the stock
6 Ceria, Sebastián, Kartik Sivaramakrishnan, and Robert A. Stubbs. "Alpha construction in a consistent investment
process." Portfolio Construction, Measurement, and Efficiency. Springer, Cham, 2017. 257-274.

7FINANCE AND INVESTMENT
has been specifically low to about 1.37 where the expected return on equity from the stock has
just been around 8.18%.
National Australia Bank Ltd: The National Australia Bank Ltd has a net interest margin of
about 2% and a efficiency ratio 51.88% close to industry average of 52% and with a 19.94% of
fees revenue reported. The annual return that was calculated for the stock was around 8.65%, the
annual standard deviation for the stock was around 21.45% and beta for the stock has been
specifically low to about 1.17 where the expected return on equity from the stock has just been
around 7.18%.
Westpac Banking Corporation: The Westpac Banking Corporation efficiency ratio was about
44.03%, a net interest margin of about 0.21% and almost 21.65% is coming from fees revenue
earned. The annual return that was calculated for the stock was around 4.70%, the annual
standard deviation for the stock was around 21.70% and beta for the stock has been specifically
low to about 1.30 where the expected return on equity from the stock has just been around
7.84%. The stock though has provided returns below then expected rates however the same is
expected to change as the company is increasing the associated business operations.
BHP Billiton: The BHP Billiton had a gross profit margin of about 80.37%, operating profit
margin of about 36.38%, net margin of about 21.50%, return on equity of about 16.81%. The
return generated from the stock was around 31.73% at the same time where expected return was
5.08% and with a standard deviation of about 22.82%. The beta of the stock was calculated to be
0.74.
RIO Tinto Limited: The gross operating margin of company was around 50.97%, the net
margin for the company was around 34.36% and the return on equity for the stock has been

8FINANCE AND INVESTMENT
around 30.86%. The return generated from the stock in the time period was around 32.23% with
a expected return on equity to be 5.56% the beta for stock at the same time was 0.84 and risk at
23.86%.
CSL Limited: The gross margin for the company has been around 55.95%, the net margin was
22.47% thereby generating an overall return on equity to be around 41.12%. The return
generated from the stock was around 24.37% whereby the expected rate of return from the stock
has just been around 6.82% with the stock SD at 24.67% and beta at 1.09 levels7.
Suncorp Group Ltd: The investment ratio for the stock has been around 28.35% and the debt to
equity ratio for the stock has been around 143.53%. The return generated from the stock was
around 6.48% at the same time the expected rate of return on the stock was around 5.99%. At the
same time the standard deviation for the stock was around 20.74% with a beta value of around
0.93.
Wesfarmers Ltd: The gross margin for the company has been around 29.08%, net margin at
2.60% and a return on equity of about 14.38%. The expected rate of return on the stock was
around 5.01% and the return generated from the stock at the same time was around 13.86% with
an annual standard deviation of about 20.81%.
Woolworths: The gross margin for the company has been around 29.08%, net margin at 2.60%
and a return on equity of about 14.38%. The expected rate of return on the stock was around
3.59% and the return generated from the stock at the same time was around 16.15% with an
annual standard deviation of about 18.90%.
7 Ceria, Sebastián, Kartik Sivaramakrishnan, and Robert A. Stubbs. "Alpha construction in a consistent investment
process." Portfolio Construction, Measurement, and Efficiency. Springer, Cham, 2017. 257-274.

9FINANCE AND INVESTMENT
References
"What Is A Top-Down Portfolio?." Smallbusiness.chron.com. N. p., 2019. Web. 19 Sept. 2019.
Auer, Benjamin R. "Do socially responsible investment policies add or destroy European stock
portfolio value?." Journal of business ethics 135.2 (2016): 381-397.
Basilio, Marcio Pereira, et al. "Investment portfolio formation via multicriteria decision aid: a
brazilian stock market study." Journal of Modelling in Management 13.2 (2018): 394-417.
Ceria, Sebastián, Kartik Sivaramakrishnan, and Robert A. Stubbs. "Alpha construction in a
consistent investment process." Portfolio Construction, Measurement, and Efficiency. Springer,
Cham, 2017. 257-274.
DeFusco, Richard A., et al. Quantitative investment analysis. John Wiley & Sons, 2015.
Dempsey, Mike. INVESTMENT ANALYSIS: An Introduction to Portfolio Theory and
Management. Routledge, 2019.
Guerard Jr, John B., ed. Portfolio construction, measurement, and efficiency: Essays in honor of
Jack Treynor. Springer, 2016.