Assignment Of Financial Analysis
Added on 2019-09-25
23 Pages4205 Words166 Views
Running Head: Financial AnalysisFINANCIAL ANALYSIS
Financial Analysis 2Table of Contents1. Formulation of a mini case of a hypothetical company...............................................................32. Analysis of Ford Motor Company and Tesla, Inc.......................................................................8a. Betas of Ford Motor Company and Tesla Inc..........................................................................8b. Calculation of return of stock...................................................................................................8c. Calculation of the risk of stocks...............................................................................................9d. Comparison between Ford Motor Company and Tesla, Inc..................................................10e. Calculation and Comparison between Ford Motor Company and Tesla, Inc........................10Reference List................................................................................................................................16Appendices....................................................................................................................................18Appendix 1.................................................................................................................................18Appendix 2.................................................................................................................................21
Financial Analysis 31. Formulation of a mini case of a hypothetical companyElliott Fashion Private Limited is a garment manufacturing company which is located in Australia. The company is highly capable of manufacturing high quality fashion garments by using top-notch fabric and ultra-modern designs. The company uses to manufactured and retail its products in the domestic market of Australia. It is famous for fast-fashion clothing items for women, teenagers, men, and children. Within Australia, Elliott Fashion Private Limited sells its products through ten retail outlets and two factory outlets that are solely operated by it. Besides this, the company also retails its clothing items through supermarkets and retail chains. The company is very much committed to deliver standard quality clothing items at an affordable price without compromising with the quality and style of the products. It is aimed to expand its garment business in and around the major cities of Australia and for long-term it is intended to enter into some of the flourishing markets in Asia like India, Singapore, and China. The company's stocks are valued at a satisfactorily due to its steady growth in terms of profit generation and increasing goodwill. The company has raised finance by issuing shares as well as bonds. For meeting annual finance need, it uses to reinvest its profit it uses to retain every year after making required payments to its shareholders and creditors.Questions and Answer on the following topics:Stock Valuation Question 1What is the reason behind valuing stock?Answer: In orderto predict the future price of shares or potential market price of shares stock valuation is done. It aimed to help the investors make their decision to make an investment in a company through purchasing that company's shares.Question 2How stock valuation is done?
Financial Analysis 4Answer: For calculating stock valuation current intrinsicvalueof a company’sstock ismultiplied by that company's projected EPS (earnings per share). Question 3What are the methods of stock valuation?Answer: There are two types of stock valuation method such as absolute method and relative method. The absolute method of stock valuation includes two types of valuation methodssuch as theDDM (dividend discount model)and DCF (discounted cash flow model). On the other side, relative stock valuation is done by calculating the major financial ratios of the same line companies. Relative stock valuation stands as comparative analysis of companies on the basis of their financial ratios like ROA (Return on Assets), EPS (earnings per share) and more (corporatefinanceinstitute.com, 2019).Bond valuationQuestion 1What is bond valuation?Answer: Bond valuationrefers to a technique by using which a specific bond’s theoretical fairvalue isdetermined.Bond valuationuses to include the calculation of presentvaluesof the future interest payment attached to a bond, and thevalue of a bondupon maturity which is known as parvalue or facevalueof a bond.Question 2What is the reason behind bond valuation?Answer: Bond valuation is done for determining the accurate PV (present value) of a bind and for making an informed decision regarding investment.Question 3What are the steps of bond valuation?
Financial Analysis 5Answer:Step 1: Making an estimation of the expected cash flows. Step 2: Determination of the appropriate rate of interest which is required to be used for discounting the expected cash flows. Step 3: Calculation of the PV (present value) of the expected cash flows (computed in step -1) by using the interest rate calculated in step – 2 (efinancemanagement.com, 2019).Cost of capital Question 1What stands as the cost of capital for an organisation?Answer: Cost of capitalis comprised of the costof equity and costof debt both that are used by a company for financing its business. Cost of capitalof a company depends on the financing type acompanychooses for financing its business. It refers to anopportunity costattached with a particularinvestment. Cost of capital is arate of returnwhich could be earned by an investor if he/she makes the sameamount of investmentin another investment option that includes equal risk.Question 2Why the cost of capital matters?Answer: Cost of capital is a vital component in the task of valuing a business. It is often used as the discount rate for calculating the fair value of the cashflows an investment delivers. Ithelps investors to gauge the risk of investing in a company’s shares and it is necessary to calculate for making decisions on capital budgeting. It helps to frame an appropriate credit policyand to evaluate investment options. Furthermore, cost of capital is also played a vital role in designing an optimum capital structure for a company (businessjargons.com, 2019).
Financial Analysis 6Capital Budgeting Question 1What is capital budgeting?Answer: Capital budgeting refers to a process by applying which a company uses to determine and evaluate the potential investments or largeexpenses required to incur for a proposed investment. These investments and expenditures include large capital projects such as investing in one or more long-term venture(s), constructing a new office building or plant or installation of any heavy machineries for new plat or existing production plant and more. Capital budgeting is also called investmentappraisal by using which a company compares between two or more investment options and then select one out of them which it found more profitable than the other options.Question 2What are the benefits of capital budgeting?Answer: Capital budgeting decisions help a company to evaluate a proposed project by considering the expected outcome (monetary in form) of the project. It also helps to evaluate expenditure related decisions which are involved in the current outflow of funds, to understand risk and efforts, let the company control its expenditure and abstain a company from under and over-investment. Question 3What are some of the commonly applied capital budgeting techniques?Answer: Capital budgeting methods are sub-divided into two segments such as traditional method and modern or discounting method. Under the traditional method, capital budgeting is done by calculating the payback period, accounting rate of return, and post-payback period. On the other hand, modern or discounting method of capital budgeting includes calculation of net present value (NPV), internal rate of return (IRR) and profitability index.
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