An Analysis of the Companies Portfolio to Create Value on the Inv

Executive Summary 2 Introduction 2 Task 1 3 Answer to question no-1 3 Use of equity valuation method 3 Dividend discount model 3 Computation of the Price earnings Ratio 8 Rank the ten investments in order of desirability 9 Which investment of the ten would you select 12 Why the investment option selected 12 Task 2 12 Research and summarise some interesting facts about Warren Buffet 12 Task 3 15 Compare Warren Buffet’s approach to share valuation and the share valuation methodology 15 Share valuation Methodology 16 Conclusion 17 References 17 Appendix 19 Introduction It

Running Head: Financial Analysis of the Companies
0
Financial Analysis of the Companies

Financial Analysis of the Companies 1
Executive Summary
With the ramified changes in economy, investors needs to analysis the stock price,
return available on the equity investment and beta of the company to create value on their
investment. It is observed that investors needs to analysis whether the undertaken companies
in the portfolio will create value on the investment or not. It is observed investors needs to
select those companies which will have lower beta and market risk premium.

Financial Analysis of the Companies 2
Table of Contents
Executive Summary...............................................................................................................................2
Introduction...........................................................................................................................................2
Task 1....................................................................................................................................................3
Answer to question no-1.......................................................................................................................3
Use of equity valuation method........................................................................................................3
Dividend discount model...................................................................................................................3
Computation of the Price earnings Ratio...............................................................................................8
Rank the ten investments in order of desirability..............................................................................9
Which investment of the ten would you select...............................................................................12
Why the investment option selected...............................................................................................12
Task-2..................................................................................................................................................12
Research and summarise some interesting facts about Warren Buffet...............................................12
Task 3...................................................................................................................................................15
Compare Warren Buffet’s approach to share valuation and the share valuation methodology.........15
Share valuation Methodology..........................................................................................................16
Conclusion...........................................................................................................................................17
References...........................................................................................................................................17
Appendix.............................................................................................................................................19

Financial Analysis of the Companies 3
Introduction
It is analyzed that Investors needs to assess whether the particular company in which
they will invest their capital will create value on their investment or not on the basis of
different valuation method. The profitability, rate of return, weighted average cost of capital
is some of the factors which affect the share price of company. In this report, valuation
method is used to value the share undertaken in this report. After that, approach Warren
Buffet has been used for the valuation of the share. In the end, comparisons of the Warren
Buffet’s approach with the share valuation have been done to evaluate the best share price
value of these selected companies.

Financial Analysis of the Companies 4
Task 1
Answer to question no-1
Use of equity valuation method
In order to compute the equity value of these 10 selected companies, Capital Assets
Pricing model will be used to determine the return on capital employed (Yahoo finance,
2018).
CAPM Method
RF Risk free rate of return
RM Market premium
Beta risk of the Company
Cost of equity RF+(RM-Rf)B
Dividend discount model
After that, Dividend discount model will be used to compute the share price of
company (Yahoo finance, 2018).
PARTICULARS
PRICE
OF
SHAR
ES
GR
O
WT
H
COST OF EQUITY
Computed by using
the CAPM model
RISK FREE
RATE OF
RETURN
B
E
T
A
MAR
KET
RATE
INFORMATIO
N

Financial Analysis of the Companies 5
TECHNOLOGY
COMPUTERSH
ARE LIMITED 17.57
-
0.28
% 7% 2.77%
1.
04 6.5%
WISETECH
GLOBAL 13.25
0.15
% 12% 2.77%
2.
39 6.5%
Altium 22.28
1.67
% 6% 2.77%
0.
82 6.5%
ENERGY
BHP Billiton 50.3
-
0.10
% 9% 2.77%
1.
29
15 7.7%
CALTEX
AUSTRALIA
LIMITED 30.5
2.11
% 7% 2.77%
0.
91 7.7%
WORLEYPARS
ONS LIMITED 17.44
1.99
% 11% 2.77%
1.
69 7.7%
APAC COAL
LIMITED 2.43
0.83
% 26% 2.77%
4.
82 7.7%
FINANACIALS

Financial Analysis of the Companies 6
COMMON
WEALTH BANK
OF AUSTRALIA 70.94
-
0.06
% 8% 2.77%
1.
01 8.2%
National
Australian Bank 28.4
-
0.63
% 9% 2.77%
1.
18 8.2%
SUNCORP
GROUP
LIMITED 13.93
-
0.29
% 8% 2.77%
0.
89 8.2%
(Yahoo finance, 2018).
Computation of the share price of these different companies by using the Dividend
growth mode
Price of the company D1/ Ke-G
D1 Dividend payment
Ke= Cost of the equity
G= Growth rate
Particular Net
income(
$ in
Dividen
d pay-
out
Divide
nd
paym
Rete
ntion
Gro
wth
K
E
D1
(In
milli
K
E
-
Share
price of
Compan

Financial Analysis of the Companies 7
million ratio ent ratio rate on) G y
Information
technologies
COMPUTERSH
ARE LIMITED 2105.8 2%
45.485
28 98%
2.1
%
7
% 46.45
4.
5
% 1024.0
WISETECH
GLOBAL 1537 0% 2.6129
100
%
0.2
%
1
2
% 2.62
1
1.
5
% 22.7
Altium 63.31 2% 1.2662 98%
2.0
%
6
% 1.29
3.
9
% 33.4
ENERGY
BHP Billiton 64.29 2%
1.4143
8 98%
2.2
%
9
% 1.44
6.
9
% 20.9
CALTEX
AUSTRALIA
LIMITED 24.35 2%
0.3652
5 99%
1.5
%
7
% 0.37
5.
7
% 6.5
WORLEYPARS
ONS LIMITED
520 3% 15.6 97% 2.9
%
1
1
16.05 8.
1
198.0

Financial Analysis of the Companies 8
% %
APAC COAL
LIMITED -235 0%
100
%
0.0
%
2
6
% 0.00
2
6.
3
%
FINANACIALS
COMMON
WEALTH
BANK OF
AUSTRALIA 9928 6% 595.68 94%
5.6
%
8
%
629.2
8
2.
6
% 24070.5
National
Australian Bank 4975 4% 199 96%
3.8
%
9
%
206.6
4
5.
3
% 3871.6
SUNCORP
GROUP
LIMITED 1075 5%
56.222
5 95%
5.0
%
8
% 59.01
2.
6
% 2229.9
Computation of the Price earnings Ratio
Computation of the PE Ratio

Financial Analysis of the Companies 9
MPS
EP
S PE ratio (MPS/EPS)
Information technologies
COMPUTERSHARE LIMITED
17.5
7
0.5
7 30.82
WISETECH GLOBAL
13.2
5
0.5
7 23.25
Altium
22.2
8
0.3
5 63.66
ENERGY
BHP Billiton 50.3
CALTEX AUSTRALIA LIMITED 30.5 1.4 21.79
WORLEYPARSONS LIMITED
17.4
4 1.3 13.42
APAC COAL LIMITED 2.43 0 #DIV/0!
FINANACIALS
COMMON WEALTH BANK OF AUSTRALIA
70.9
4 2.2 32.25

Financial Analysis of the Companies 10
National Australian Bank 28.4 1.5 18.93
SUNCORP GROUP LIMITED
13.9
3
0.5
7 24.44
(Yahoo finance, 2018).
Rank the ten investments in order of desirability
Rank the ten investments in order of desirability
Particular
P
E
ra
ti
o
Market
Price of
the
shares KE
Bet
a
CO-
EFFIC
IENT
OF
VARI
ANCE
RANK (IN
TERMS OF
BETA/ COST
OF EQUITY)
RANK (IN
TERMS OF
BETA/ COST
OF EQUITY)
Information
technologies
30
.8
2 1023.99
7
% 1.04 15.6 8 3
COMPUTERS
HARE
LIMITED
23
.2
5 22.73
1
2
% 2.39 20.5 10 1
WISETECH
GLOBAL
63
.6
6 33.37
6
% 0.82 14.1 5 6

Financial Analysis of the Companies 11
Altium
0.
00
ENERGY 20.88
9
%
1.29
15 14.2 6 5
BHP Billiton
21
.7
9 6.46
7
% 0.91 12.6 3 8
CALTEX
AUSTRALIA
LIMITED
13
.4
2 198.02
1
1
% 1.69 15.3 7 4
WORLEYPA
RSONS
LIMITED
2
6
% 4.82 18.3 9 2
APAC COAL
LIMITED
FINANACIA
LS
COMMON
WEALTH
BANK OF
AUSTRALIA
32
.2
5
24070.5
5
8
% 1.01 12.2 2 9

Financial Analysis of the Companies 12
National
Australian
Bank
18
.9
3 3871.58
9
% 1.18 12.9 4 7
SUNCORP
GROUP
LIMITED
24
.4
4 2229.93
8
% 0.89 11.7 1 10
Notes –
Beta— the beta of all companies have been taken from the Yahoo finance (Yahoo finance,
2018).
Market risk factor- The market risk factors has also been taken from the Yahoo finance
(Yahoo finance, 2018)
RF- the Risk free rate of return has been taken from the Bloomberg.
(Bloomberg, 2018)

Financial Analysis of the Companies 13
Which investment of the ten would you select
In this case, Sun Crop Group Company would be selected for the investment purpose.
Why the investment option selected
It is considered that the PE Ratio of this company is higher and the Beta of the same
is also very less. If investors invest in this company then they will have good amount of
return on their investment. From the above calculations it can be analysed that Sun Corp
Group Limited is ranked as number 1 on the basis of risk per unit of return is 0.1357 which is
the least as compared to other companies and sectors
Task-2
Research and summarise some interesting facts about Warren Buffet
It is analyzed that Warren Buffet is the investors who is indulged in investing the
several companies to create value on his investment. He has been working as CEO of the
Berkshire Hathway. Warren Buffet follows different valuation methods to invest his capital
in different companies. He evaluates financial information of company and determines
whether profitability, share price and revenue have direct and indirect relation with their
amount value. The Intrinsic value is an estimate rather than a precise figure which shows that
share price valuation on the basis of undervalued and overvalued model, company needs to
analysis whether the invested capital will showcase higher outcomes in the long run or not
(Flannery,(2016).

Financial Analysis of the Companies 14
After evaluating all these 10 companies, Warren Buffet Could determine the
following factors which are given as below.
In case of information technologies, following companies have been selected.
Information technologies
COMPUTERSHARE LIMITED
WISETECH GLOBAL
Altium
The share price of Computer share Limited is $ 17.57 which shows that the share price of
company is overvalued. However, the share price of company has increased due to the
merger and leading strategies of company as per the Warren Buffet opinion. In context with
the WISETECH GLOBAL Company, It has also surged its profitability which have directly
impacted its share price. However, the share price of company is undervalued. As per the
opinion of the Warren Buffet, Altium Company has faced high loss in its business and will
take long time to create value on the investment.
Similarly in energy sectors there are following companies have been selected.
ENERGY
BHP Billiton
CALTEX AUSTRALIA LIMITED
WORLEYPARSONS LIMITED
APAC COAL LIMITED

Financial Analysis of the Companies 15
The share price of BHP Billiton is $ 50.7 which is higher than its intrinsic value. This
company is highly profitable and will create good return on investment. However, the share
price of company has increased due to the higher proftiabit8y and PE ratio of company as per
the Warren Buffet opinion (Ahmadi, 2017). In context with the CALTEX AUSTRALIA
LIMITED, It has also surged its profitability and increased its overall net profit by 20%
which have directly impacted its share price. However, the share price of company is
undervalued. APAC COAL LIMITED will lower down its share value due to the negative
market factors and downsize of its business as per the opinion of the Warren Buffet (Yahoo
finance, 2018).
Afterward, following companies in Finance Sectors have been evaluated.
COMMON WEALTH BANK OF AUSTRALIA
National Australian Bank
SUNCORP GROUP LIMITED

Financial Analysis of the Companies 16
As per the perception of the Warren Buffett, Share price of Common wealth will surged
in next upcoming years. It has captured more than 45% market share around the globe. The
dividend offered in the last year also shows that company has increased its dividend rate by
23% since last five years (Yahoo finance, 2018).
The National Australian Bank has also increased its share price since last two years. In
opinion of Warren Buffet, current revenue of company has increased by 25% since last past
five year data. The Ordinary dividends are also fully franked. Therefore, the share price of
the Company will be increased in the upcoming years.
Current revenue of company has increased by 18% of the Sun Corp Corporation, as per
the views of the Warren Buffet; Shareholders should invest their capital in this company
based on its revenue generating capacity and increased business outcomes (Bielecki, &
Rutkowski, 2013).
Task 3
Compare Warren Buffet’s approach to share valuation and the share
valuation methodology
As per the Opinion of the Warren Buffet, share valuation of the company should be
done by using the intricacies of the demand and supply factors prevailing in the market not on
the brand image and sustainable business condition. There are simple questions which
Warren Buffet look for while undertaking the stocks in its portfolio (Baños-Caballero, García-
Teruel, & Martínez-Solano, 2014).
In terms of the Return on equity
As per the Warren Buffet, Investors needs to analysis whether the company has been
performing well since last ten years (Cakici, Fabozzi, & Tan, 2013).
Financial leverage of company
The financial leverage determines the sustainability of the company in long run. It
should be determined by the investors that whether Company has optimum debt to capital
structure or not (Yahoo finance, 2018).

Financial Analysis of the Companies 17
Profitability of the business
The profitability of the company is determined on the basis of net income and profit
earned by company. As per the Warren Buffet, only those companies would be selected
which have higher profit earning capacity and performing well since long time (Delen,
Kuzey, & Uyar, 2013).
Nature of the organization and legal compliance
Warren Buffet considers that company should have been listed at least for 10 years.
Investors should also see whether company has strong financial position with the effective
legal compliance program (Robb, & Robinson, 2014).
Share valuation Methodology
Warren Buffet has given two-column Valuation Methodology which deals with the
market price and intrinsic value of company. This model is used to identify the value or share
price of company.
 Relative Valuation Model:
It is used when; investors need to compare the companies working in the same
industry.
P/E ratio is calculated to give the ranking to stocks or determining the undervalued and
overvalued shares (Ehiedu, 2014).
 Dividend Discount Model
It assists in determining the actual price of the company based on the growth,
dividend paid and growth of the company. It is observed that this dividend model will be
used to value the market price of company.
. Discounted Cash Flow Model
This model is used to evaluate the share price when the irregular dividends or no
dividends are paid to shareholders. It is ideally used to value the share price of company that
are paying zero dividends (Yahoo finance, 2018).
It could be inferred that the valuation method and its selection based on the industry
and the prevailing company in the market. . Investors could also determine which method

Financial Analysis of the Companies 18
they could deploy on the basis of available information. It could be inferred that single
method is not enough to identify the true value of the assets in market.
Conclusion
There are several internal and external factors which affects the share price of
company. It has been observed that there are several share price valuation methods which
could be used to value the share to determine whether the share price are undervalued or
overvalued. Investors should use different models to value the share of undertaken
companies.

Financial Analysis of the Companies 19
References
Ahmadi, A. (2017). The Stock Price Valuation of Earnings per Share and Book Value:
Evidence from Tunisian Firms. The Journal of Internet Banking and
Commerce, 22(1), 1-11.
Bielecki, T.R. & Rutkowski, M., 2013. Credit risk: modeling, valuation and hedging.
Springer Science & Business Media.
Bloomberg, 2018, Treasury Government bonds rates, retrieved on 12th May, 2018, from
https://www.google.co.in/search?
q=Bloomberg+govermentn+bond+rate&oq=Bloomberg+govermentn+bond+rate&aqs
=chrome..69i57j0l5.5915j0j9&sourceid=chrome&ie=UTF-8
Cakici, N., Fabozzi, F.J. &Tan, S., 2013. Size, value, and momentum in emerging market
stock returns. Emerging Markets Review, 16, pp.46-65.
Delen, D., Kuzey, C. &Uyar, A., 2013. Measuring firm performance using financial ratios: A
decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
Owens, D. (2018). Simply Wall ST. Retrieved from https://simplywall.st/stocks/au/banks/asx-
ben/bendigo-and-adelaide-bank-shares/news/what-makes-bendigo-and-adelaide-bank-
limited-asxben-a-great-dividend-stock/
Baños-Caballero, S., García-Teruel, P.J. & Martínez-Solano, P., (2014). Working capital
management, corporate performance, and financial constraints. Journal of Business
Research, 67(3), pp.332-338.
Ehiedu, V.C., (2014). The impact of liquidity on profitability of some selected companies:
The financial statement analysis (FSA) approach. Research Journal of Finance and
Accounting, 5(5), pp.81-90.
Flannery, M.J., (2016). Stabilizing large financial institutions with contingent capital
certificates. Quarterly Journal of Finance, 6(02), p.1650006.
Robb, A.M. &Robinson, D.T., 2014. The capital structure decisions of new firms. The
Review of Financial Studies, 27(1), pp.153-179.

Financial Analysis of the Companies 20
Yahoo finance, 2018, CALTEX AUSTRALIA LIMITED, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, COMMON WEALTH BANK OF AUSTRALIA, retrieved on 12th
May, 2018, from https://in.finance.yahoo.com/
Yahoo finance, 2018, COMPUTERSHARE LIMITED, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, National Australian Bank, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, SUNCORP GROUP LIMITED, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, WORLEYPARSONS LIMITED, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, Altium, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, BHP Billiton, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, WISETECH GLOBAL, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
ASX. (2018, may 09). ASX. Retrieved from ASX LIMITED:
https://www.asx.com.au/prices/company-information.htm
Yahoo finance, 2018, APAC COAL LIMITED, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/

Financial Analysis of the Companies 21
Appendix