Financial Management: Analysis of ABC Retail Company

Running head: FINANCIAL MANAGEMENT
Financial management
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1FINANCIAL MANAGEMENT
Table of Contents
Part A.........................................................................................................................................2
Answer 1................................................................................................................................2
Answer 2................................................................................................................................2
Answer 3................................................................................................................................3
Answer 4................................................................................................................................3
Answer 5................................................................................................................................4
Part B..........................................................................................................................................5
Introduction............................................................................................................................5
Agency problem and shareholder’s wealth maximization.....................................................5
Application through real world example................................................................................6
Legal inference obtained from the information.....................................................................6
Conclusion..................................................................................................................................7
Reference....................................................................................................................................8

2FINANCIAL MANAGEMENT
Part A
Answer 1
a. Share price of ABC as on 30th June 2018
P/E ratio = Share price / Earnings per share
Therefore, share price = P/E ratio * EPS
Share price = 7.66 * 0.020 = $ 0.1532
b. Market capitalisation
Particulars Amount (000)
EBIT $ 1,305.00
Less:
Interest expenses $ 1,245.00
Profit before tax $ 60.00
Less: Dividend paid $ 20.00
Profit available to shareholder $ 40.00
EPS 0.02
Number of outstanding share 2,000,000
Market capitalization = Number of share outstanding * share price
Therefore, market capitalisation = 20,00,000 * $ 0.1532 = $ 3,06,400
c. P/E ratio
Australian retail industry’s most recent P/E ratio is 15.8 whereas the P/E ratio of ABC
Retail Company is 7.66. The difference may be due to the lower amount of profitability for
the company and lower share price for ABC’s stock (Safitri 2013).