Finance and Risk Management: Analysis of Samsung and LG Electronics

Finance and risk management

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
1. Ratios.......................................................................................................................................3
2 Log Returns..............................................................................................................................6
3 Arithmetic Average Returns.....................................................................................................9
4 Risk (Std. Deviations) of the Individual Stocks.....................................................................10
5 Correlation between the two Stocks.......................................................................................10
6 Systematic Risk (betas- the slope of the regression)..............................................................10
7 Cost of Equity (required rate of return)..................................................................................12
8 Portfolio Return......................................................................................................................12
9 Portfolio Beta..........................................................................................................................12
10 Portfolio Risk........................................................................................................................13
11. Capital Structure Choices and Firm Valuation....................................................................13
12 Stock Prices depend on Future Dividends and Dividend Growth........................................15
13 Undervaluation or Overvaluation.........................................................................................16
14 Relationship between Company Announcements and Share Price Behaviour....................16
15 Recommendations.................................................................................................................17
CONCLUSION..............................................................................................................................17
REFERENCES................................................................................................................................1

INTRODUCTION
Management of finances and risk involved in the process of investing in certain
stocks is referred to as financial and risk management. It involves monitoring returns, risks, beta
values and other financial factors to base the investing decision. Therefore, the following report
which involves analysis of two stocks i.e., LG and Samsung includes such process of financial
and risk management. For the analysis of the finance and risk management the organizations
selected by Samsung Electronics and LG Electronics.
MAIN BODY
1. Ratios
1 2 3 4 5
1.04
1.06
1.08
1.10
1.12
1.14
1.16
1.18
Current Ratio - LG Electronics
1 2 3 4 5
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Current Ratio - Samsung
Electronics
1 2021
2 2020
3 2019
4 2018
5 2017
The current ratio of a company is used to get insight about the liquidity of the company
(Supriyanto and Darmawan, 2018). The current ratio of the Samsung electronics is more stable
than the LG electronics. Samsung maintains an ideal current ratio on the other LG’s current ratio
is below 2.

1 2 3 4 5
0.73
0.74
0.75
0.76
0.77
0.78
0.79
Quick Ratio - LG Electronics
1 2 3 4 5
0.00
0.50
1.00
1.50
2.00
2.50
3.00
Quick Ratio - Samsung
Electronics
Quick ratio also depicts the liquidity position of the company. A quick ratio of 1 is
considered to be an ideal ratio. LG is having a ratio below the standard level for all the five
years. Samsung maintains its ratio above the standard requirement, which is also not good. The
results show that Samsung is more capable to pay more its current obligations.
1 2 3 4 5
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
Return On Assets Ratio - LG
Electronics
1 2 3 4 5
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
Return On Assets Ratio -
Samsung Electronics
Return of assets ratio is calculated to know how efficiently a company make use of its
total assets to generate income. Samsung make high use of its assets to earn profits. The
contribution of this company’s assets in generating income is more.