Financial analysis of Man Group Plc

   

Added on  2021-04-24

20 Pages4851 Words27 Views
RUNNING HEAD: Financial analysis of Man Group Plc 0Name of the studentTopic- Financial analysis of Man Group PlcUniversity Name
Financial analysis of Man Group Plc_1
Financial analysis of Man Group Plc 1Table of ContentsAnswer to questions no-1................................................................................................................2Capital assets pricing model........................................................................................................21Answer to question no-2..........................................................................................................51.1Dividend policy of the Man Group plc.............................................................................51.2Valuation Models..............................................................................................................81.3Dividend valuation model.................................................................................................82Answer to question-3.............................................................................................................10Fisher-Hirshleifer model............................................................................................................103Conclusion.............................................................................................................................114References..............................................................................................................................125Appendix................................................................................................................................14Income statement...........................................................................................................................165.1Cash flow statement........................................................................................................17
Financial analysis of Man Group Plc_2
Financial analysis of Man Group Plc 2Answer to questions no-1Capital assets pricing model Capital assets pricing model is used to estimate the company's cost of equity, weightedaverage cost of capital and its share price After analysing the annual report of company it isrevealed that the capital assets pricing model is the model used to determine the value of theassets and required rate of return before investing in the particular project. This method assistsMan Group Plc Adr (Mngpy) to determine whether the earned profit should be plugged back intothe business or distributed to shareholders (Prasad, et al, (2015).In order to compute the required rate of return through the CAPM, firstly beta ofcompany needs to be computed.The computed beta of company is taken from the online sites.The beta value of the company is 1.354 (Financial times, 2017).After that by using the CAMP method, required rate of return of company will becomputed.Computation of the required rate of return CAPM= RF+ (Rm-RF)*BAn RF= Risk-free rate of returnRM= Market Risk B= Beta of companyComputation of required rate of return Calculation of Required rate of return
Financial analysis of Man Group Plc_3
Financial analysis of Man Group Plc 3Risk free rate (A)2.0%Beta (B)1.3549Market Risk rate(C)12%Required rate of return [A+(B*C)] 15.55%Source: https://www.bloomberg.com/markets/rates-bonds/government-bonds/ukIt is observed that this required rate of return is the amount of cost of capital which isrequired to be paid by the company to its shareholders. However, this rate is also used by thecompany to set the present value of the future inflow and outflow from the business. This rate ofreturn plays the pivotal role in determining the dividend policy in the company. For instance, ifthe company uses dividend discount model or Gordon model then it could use required rate ofreturn to compute the future share price and dividend growth rate of the company. This modelhas reflected that if the company want to manage the cost and financial risk of its business then itwill first have to set up equilibrium point between the cost of capital and financial risk of thebusiness. The Man group company has high financial leverage and with the high decrease in itstotal revenue, it may destruct the sustainability of the company and may result in the destructionof its business at large (Sanlorenzo, et al. 2015).Weighted average cost of capital The Weighted average cost of capital is the rate that company expected to pay on averageto all its security holders to finance its assets. This WACC is highly influenced by the financialleverage and cost of capital of the company. It is evaluated that company has more than 53% ofequity capital and 46% debt capital in its financial structure. It reflects that company has higherfinancial leverage in its business. Ideally, the financial leverage of company should be lowotherwise at the time of sluggish market condition; it will destruct the business value of thecompany. However, the cost of debt of the company is already way too low. Man group has usedthis debt portion to keep its cost of capital low. At the same time, use of this debt portion willalso increase the financial risk of the organization. This weighted average cost of capital willassist the company to identify the areas which could be improved to lower down its cost ofcapital. However, the company has high financial leverage and due to the increased financial
Financial analysis of Man Group Plc_4

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
An Analysis of the Companies Portfolio to Create Value on the Inv
|22
|2960
|167

Determining Capital Structure and Weighted Average Cost of Capital (WACC)
|5
|1146
|111

Valuation of shares of JB Hi Fi Ltd
|11
|1896
|188

Corporate Finance: Cost of Equity, Asset Beta, Dividend Ratios
|13
|4146
|340

Financial Management: Solved Assignments and Essays
|31
|2917
|353

Valuation of the Shares of the Companies
|21
|2738
|191