Financial Management: Diversification, Valuation, Investment Appraisal Techniques

Financial Management

Contents
Introduction.................................................................................................................................................3
Part B...........................................................................................................................................................3
Task 1......................................................................................................................................................3
Diversification.....................................................................................................................................3
Task 2......................................................................................................................................................5
Valuation of a company.......................................................................................................................5
Key drivers of valuation models........................................................................................................10
Task 3....................................................................................................................................................12
Investment appraisal techniques........................................................................................................12
Evaluation of investment appraisal techniques..................................................................................15
Conclusion.................................................................................................................................................19
REFERENCES..........................................................................................................................................20

Introduction
Each investor wishes to optimize benefit and minimize risk. Both investments include a return-
compensated risk factor. More chance is the return, as the expression goes. Therefore, an
investor has to take more chances in order to get more income (Shapiro and Hanouna, 2019). The
diversification of the portfolio with various instruments with various costs and returns is yet
another way to minimize risk. In the first section, an investor explores how both risk and income
should be managed. In the second part of the appraisal of a organization, various approaches are
used. The investment valuation strategies for deeper comprehension are seen in the final section
of the report.
Part B
Task 1
Diversification
Diversity is a risk control strategy. An investment is converted into a broad number of financial
tools in a system in order to minimize risk for any particular vessel of investing. Another
concept behind this strategy is that a multiple-asset portfolio will produce larger long-term
rewards whereas reducing the risk associated with single assets, i.e. the gains from good
investing will compensate for the loss incurred by other investments' bad results. Bonds and
stocks, for example, are normally mutually incompatible (Apte and Kapshe, 2020). If the
economy weakens, it is possible that asset prices will crash. Central banks cut interest rates in
order to save economies in this situation to lower borrowing costs and to raise market expenses.
This adds to a rise in bond yields. If an investor owns portfolio securities and stocks, the increase
in bond value could compensate for a decrease in stock valuation. And the burden was at least
decreased even though revenues were not raised.
Investors of any capital asset not only make gains, but also risk, the most critical aspect of the
decision-making process as they chose to expand. Risks are the risk of a real investment return
being different from the theoretical return. Each investment entails a risk and each investor has a
particular risk tolerance. Two examples of payment risk are structural hazards and unspecific

hazards. Systematic value is also referred as market risk as it macro-effects certain threats.
Popular categories of structural risks include interest rate risks, inflation, market liquidity, etc.
Unsystematically, the threats in these groups often impact particular sectors or businesses.
Changes in ownership, retrieval of goods, new major business players, etc. Both are common and
challenging to diversify systemic threats. The challenge of investors controlling by expanding
their investments is unbundling. Each expenditure entails a risk and each shareholder has a
particular risk tolerance. Two examples of payment risk are structural hazards and unspecific
hazards. Systematic value is also referred as market risk as it macro-effects certain threats.
Popular category of structural risks includes interest rate risks, inflation, market liquidity, etc.
Unsystematically, the threats in these groups often impact particular sectors or businesses.
Changes in ownership, retrieval of goods, new major business players etc. Both are common and
challenging to diversify systemic threats. The challenge of investors controlling by expanding
their investments is unbundling. The equity investors pre-estimate these returns without spending
elsewhere in their capital. In these equations, certain profitability statements help (Mitchell and
Calabrese, 2019). It helps to define the relationship between profits per share and the market
price per share, for instance, of earnings return. The P / E ratio remains the same. It's a nice
return on the metric of investment. Shareholder preparation is performed in many ways to
maintain a diversified portfolio to reduce the risk to compensate risks for future gains. Any of
them are stated below:
• First of all, in contrast to projected returns, investors will define their risk appetite. Their
Portfolio can then be expanded to various investment resources including currency, stocks,
shares, reciprocal fund funds, ETFs, Gold, etc.
• Diversification must also be followed across of form of capital channel. For instance, securities
vary according to sector, market cap, area, revenue, valuation, growth, etc.
• Aim to define and include risk-factor-vitiating securities that pose threats to each other. Only
other thing to note is that diversifying is not a single process. Investors must periodically track
their investment results and modify their shares in compliance with their priorities and
objectives.