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Statistical and Quantitative Analysis

   

Added on  2021-02-20

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Financial Reporting
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TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1MAIN BODY...................................................................................................................................1Rationale of choice of company and of Dividend discount model (DDM)................................1Different methods of estimating Dividend Growth rate ............................................................4Calculation of Dividend Growth rate of Unilever.......................................................................5Required rate of return and stock performance for 5 years.............................................................6Unilever stock performance along with market in last 5 years...................................................6Estimation of model....................................................................................................................7Discussion on estimated results..................................................................................................9Required rate of return using CAPM model.............................................................................10Calculation of Intrinsic Value of Unilever.....................................................................................10CONCLUSION..............................................................................................................................11REFERENCES..............................................................................................................................12
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INTRODUCTIONStatistical and quantitative analysis refers to a process of collecting a range of numericaldata and application of different statistical tools in order to determine the results from theobservations. Unilever is a UK based international company which was founded in 1929. It isone among dual listed companies which is registered in the stock exchange of UK andNetherlands. In the meantime it sales consumable goods to its customers of more than 400brands in more than 190 countries. The present study shows a brief description of Unilever and suitability of it withDividend discount model (DDM) for the purpose of showing rationale for the choice.Fuethermore, the rationale part of the assignment provides justification of the decision regardingnumber of stages decided to be taken for estimation of dividend growth of Uneliver. Further, itdescribes a detailed description about different methods used for estimating dividend growthalong with workings of deriving those rates. In addition, the study shows preparation of dataregarding CAPM model based on OLS method. Moreover, it shows calculations of derivingintrinsic value of the company. At the end of assignment, it shows a summary of overallestimations and critical evaluating of all the models used in the assignment i.e. DDM, CAPMand OLS. MAIN BODYRationale of choice of company and of Dividend discount model (DDM)Unilever PlcUnilever is one of the top most brand of the international market. It sales a range ofconsumable products to its customers at worldwide. Further, as the company is listed in Londonstock exchange as well as stock exchange of Netherlands, it can be considered as a good choicefor the project in order to develop a good understanding over valuation intrinsic value ofordinary shares of a publicly traded company. Further, Unilever has developed its effective plans and strategies regarding maintainingcorporate governance within its business (Unilever Analysis — Warren Buffett Valuation. 2017) .With the help of which it leads in maintaining transparency with its stakeholders and maintainconfidence and trust of its investors and other stakeholders as well. It results in increasing the1
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attraction of shareholders towards the company and developing it as one of the most publiclytraded company as well.Analysis of company's performance and plans for its shareholders, it can be evaluatedthat company have a policy to pay a decent amount of dividend to its shareholders each year. Ithelps the company in providing sufficient amount of satisfaction to its members and motivatethem to sustain with the company for long run as well. In addition to this, company's policy of fulfilling its corporate social responsibility alsoleads in increasing the attractiveness of stakeholder towards the company. It also helps the firmin increasing the value of business at stock market that leads in rising the intrinsic value ofcompany at rapid rate.Unilever has been categorized into two controlling company, namely, Unilever Plc whichis registered under London stock exchange and Unilever N.V. that is registered under the stockExchange of Netherlands. Being public limited organisation, the major goal and objective of it iswealth maximization. With the help of efficient business policies and their implications, theUnilever becomes able to generate maximum amount of profit from the organisation, the firmalso improve its ability of paying dividend. Therefore, the Unilever becomes able to attractmaximum amount of shareholders towards it due to its increased dividend paying capacity.Dividend discount modelDDM also known as dividend discount model is one version of dividend growth model. Itis used by the investors in order to estimate the future value of company's shares in the stockmarket. The dividend discount theory describes the present value of company's shares as a sumof present value of the dividend that would be paid by the firm in near future (Dividend DiscountModel (DDM). 2017). Further, the model describes amount of dividend to be paid by thecompany as a part of profit generated by it. As per the DDM model, by estimating the futurevalue of company's cash flow, firm's capacity to pay dividend can be estimated. Further, bydetermining present value of all the estimated dividend, one can estimate the value of company'sshares at the stock exchange. The estimation regarding growth in the rate of dividend is takengenerally on the basis of GDP growth rate of the country, as the growth of company have a hugeinfluence of economical growth of the country.2
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