Importance of Proper Investment Management

The assignment highlights the importance of proper investment management for businesses, enabling them to generate additional income from returns and diversify their operations. It discusses various investment options, including debt, equity, and cash, and explains how companies can create investment policy statements to guide decision-making. The report also emphasizes the role of system analysis in investment processes and theoretical principles of investments assessment.

INVESTMENT
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
PART 2............................................................................................................................................3
PART 3............................................................................................................................................4
PART 4............................................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Investment management is the managing and handling of various investment and
financial assets. This also includes the formulating of new and better short term or long term
strategies in order to dispose off or acquiring of holding in a portfolio (Akimova, Stein and
Prokhorova, 2015). There are various services included in the investment management such as
financial statement analysis, selection of stock, assets allocation, portfolio strategy along with the
implementation and monitoring of existing investments. This report contains the detailed
analysis of an investment policy statement which shows the various factors which are to be
considered. It also shows the determination of capital allocation strategy after considering future
and current economic situation and selection of specific investment for debt and equity. This
report also contains the details used with timelines and performance tracking for the portfolio.
PART 1
Investment policy statement: Investment policy statement is a drafted document
between a client and a portfolio manager which provides specific general rules for the managers.
In this statement managers generally provide basic investment goals and objectives for which a
client want to do investment and it also describes the various strategies which are used by
managers to achieve its given objective.
Investment policy statement for local sporting organisation for managing $250000
portfolio following are the various points which are considered:
i. Liquidity requirements: It is requirement by sporting organisation to see that how fast it
can convert its investment into cash. Liquidity is the term used in finance to see the
ability of an investment to check that how easy it can cash out of an investment. It is
important for sporting organisation to see the liquidity of its investment and its ability to
convert into cash.
ii. Return requirement: Return requirement is the amount which any organisation can earn
from its investments. It is the amount of return which sporting organisation can generate
through its investment (Andonov, Eichholtz and Kok, 2015). For sporting organisation it
is important to invest in such securities which can generate the maximum return for the
company as company has various options in which it can invest in order to generate more
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return. In case of debentures company can earn a fixed return but it is low as compared to
equity share capital.
iii. Risk Tolerance: Sporting organisation must invest in the securities which are considered
to be less risky (Arjaliès and et.al., 2017). For example company can invest its $250000
in both secured debts such as debentures preference share capital and in secured debts
which include equity share capital and mutual funds. It is important for sporting
organisation to analyse the risk before investing in any of the options. The risk is more in
the equity share capital as compared to secured debts.
iv. Time Horizon: It is a length of time in which investment is held or made by a company
before it is liquidated. Sporting organisation have various option in which it can invest its
$250000 if a company invests in secured debts such as debentures and preference share
capital the amount of investment will be struck for a given specific period of time. Where
as if company invest in unsecured debts such as equity share capital and mutual funds the
amount of investment can be liquidated at any time by selling its complete securities in
the market.
v. Tax Consideration: Sporting organisation has many options available with them for
considering its investment. If company invest in the mutual funds it can avail the tax
benefit. Tax consideration is the consideration which company considers while investing
in different investment options. It is important for sporting organisation to see all the
available options with them in order to reduce its tax liabilities.
vi. Regulatory and legal requirements: Every type of investment are compliance to various
rules and legal requirements. In sporting organisation it is important for a company to
adhere to the legal requirements associated with the investment options available. In case
the company want to invest in the bank Fixed deposit, then company has to hold its
investment for the time it is being held in company breaks its FD it has to pay additional
charges and tax on the income received. Similarly if the company invests in debenture
which is redeemable after 5 years, in this case company cannot redeem its debenture
before the completion of the term and will only earn interest with a fixed percentage on
its investment.
vii. Unique needs and circumstances: In sporting organisation company want to invest in the
various available options as the company want to increase its return and stabilize its
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market position. In the above given case company has $250000 which company want to
invest in different available securities in order to generate incomes from the investment
and also to increase raise the fund earning interest and various other returns on its
investments to support its future projects.
PART 2
Capital Allocation: Capital allocation is that how and where a company's chief
executive officer will spend or invest the money which a company has earned from its regular
business operations. It is a way in which managers decide that how it can distribute and invests
its money in various available investing options to maximize its profit and increase its
operational efficiency in order to reduce its cost (Bondarenko, 2015).
In the above given case company has $250000 which it wants to invest in various options
available with them. Following are the three different options which are available with the
managers of local Sporting organisation:
Debt: Debt is known as the amount which is borrowed by one investor, in order to help
the another party to meet its working capital requirement and many other projects. It is like a
amount which is owed to company and has to repay after a specific given period of time. In the
above given case company sporting organisation wants to invest 35% of its total investment
$250000 in debts. The company will invest around $87500 in debts which means company can
not withdraw this portion of money until the specific period of time and will earn a fixed percent
on its investment. The main benefit of investing in debts is that they are secured and will
regularly give the return on a specific percentage at an specific date. Mainly company uses debts
if they want their money to be secured and earn interest on to it. In this type of investment
company can not sell its debts before the date of maturity of its investment.
Equity: Equity is basically referred to as equity shareholders, which states that the all the
amount will be returned to these share holders if the company goes in to liquidation of it all
assets and liabilities (Boučková, 2015). It is shown on the liabilities side of a balance of a
company which denotes the money borrowed by business from its shareholders. Local sporting
organisation wants to invest around 40% of it total investment in equity resulting to around
$100000. company invest in equity in order to get higher return and get the ownership of the
company proportionate to the share held in an organisation. It is beneficial for the company to
invest in equity if company wants to earn higher return, but it also involves the risk of getting no
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return or negative return. In this type of investment there is no fixed amount of rate of return. In
this type of return company has a greater risk as well as opportunities to earn greater returns. In
equity ownership is transferred to share holders as per number of share held by them.
Cash: Cash is the line item which is stated on the balance sheet of the company on the
assets side. This is necessary for the company to have a certain amount of cash in business in
order to keep the cycle of production and working capital running. Cash also include cash
equivalents which can be converted in to cash immediately when required by the company. In
above given case scenario sporting organisation will hold its 25% share of total investment in the
from of cash i.e., $62500 in cash in order to support its working capital and keep business going
in order to generate revenue from its business operations and improve its financial positions. It is
important for company to retain some of its amount in the from of cash as it can be needed
anytime in a business and also cash is the basic requirement for any business to operate and
survive.
PART 3
Company has many options available with them in order to invest its fund in order to get
maximum return from its investments (Chandra, 2017). In the above given situation company
will invest in debts and equity, for this purpose company has many companies in which it can
invest in. Company can invest its 35% of total investment in debts issued by Accent Group
limited working in the retail industry the yield capacity of the company is 5.61% and the market
capitalisation is stated at 822.69m. Company can invest in the debts which are issue by Accent
Group limited as it can help sporting organisation to earn higher return from this investment. As
the performance of this company is showing a positive and increase rate in the growth of the
company maximizing its capital and the money invested by other shareholders. Before investing
in any company managers analyse the balance sheet income statement and cash flow statements
of these companies in order to calculate the amount of return which it can yield. The second
option which company is thinking to invest is in the equity of some company. Sporting
organisation decided to invest its 40% of the total amount of invest i.e., 100000 in the equity
share capital of Webster Limited. Webster Ltd is an Australian based company working in the
food and beverage and tobacco industry. The market capitalisation of the company is 561.48m
and its price per share is 1.580 and divided which can be yielded after investing in the company
is 1.9% with the PE ratio of 20.790, it is important for sporting organisation to analyse the
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profitability of the company in order to earn higher return. It is important for a company to earn
higher return if it is planning to invest its fund. Company also invest in other companies if it
want to change the industry in which it is working to a new and more profitable industry. In the
above case sporting organisation is currently working in the sports industry and wants to earn
more and higher return which it was earning from internet maximizers so it decided to invest its
funds in different sector and industry in order to find out the most beneficial industry and might
diversify its business operations (Lan, Moneta and Wermers, 2015).
Companies invest in other sector to find out the returns and see the capability of that
sector before entering to that particular sector. It is important for a business to completely
analyse all the data regarding the growth of the company in which it is investing.
PART 4
Sporting organisation will be investing its 35% of its total investment in the accent group
Ltd as in the forms of debts. Before investing it is important for a company to check its
performance for the past year (Nalivaychenko and Kirilchuk, 2016). The performance of Accent
Group Ltd is as follows:
Total revenue generated by the company in the year 2018 is stated as 676 and the
operating profit recorded by the company is at $38 million the total interest which company paid
during the year 2018 was $5 million to its debts and in the year 2017 the total interest payable by
the company was $4 million total revenue generated by the company shows an increasing growth
in the company sales which will help company to generate higher revenue and pay its interest
and dividend to various share holders. In accent group Ltd the operating profit margin ratio
showed an increasing trend in the growth of the business, stated operating profit margin for the
company in the year 2015 is (2.21%) where as in the year the margin of the company showed a
significant growth in the profit of the company stating its margin for the year 2016 as 5.55% in
the year 2017 it again fell down to 4.32% but in the year 2018 it restored its operating profit
margin back to 5.62% which shows that the company is doing comparatively well and can
generate higher return than the cash maximizers if the company invest in the debts issued by the
company.
The second option available with sporting organisation is to invest its 40% of the total
investment i.e., 100000 in the equity share capital of Webster Ltd. Webster limited has recorded
its revenue for the year 2018 at $151 million, in the year 2016 it has total revenue generate
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through its operations is $128 million. The growing revenue of the company shows that it will be
beneficial for sporting organisation to invest in the equity share capital of Webster Ltd as the net
income which is available to the common share holders in the year 2018 is stated at $27 million.
This states that the company has the capability to pay its investor a huge amount of return on
their investment. In the year 2016 company had gone into the losses which attracted around $81
million from the share holders in order to support its business operations and help company to
cover up those loses and earn profit. Company improved its operational efficiency and the total
operating income of the company for the year 2018 was stated at $ 40 million.
If sporting organisation invested these amounts in the above mentioned two options
company can earn higher return for both the company, it will earn the return which will be
greater than the cash maximizers account and also can understand the various other sectors in
order to diversify its business operations in future (Sweeting, 2017).
CONCLUSION
From the above file it can be concluded that it is important for a business to properly
manage its investment as it help company to generate additional income from those returns. It
can also be concluded that it plays an important role in the decision making process that
companies analyse all the different available options of investment. The report establishes that
company make investment policy statements in which it defines the various factors associated
with the investment decisions such as liquidity requirements, return requirement, risk tolerance
and various other factors which are considered by managers. It also establishes that company can
invest in various available options such as debt, equity and cash.
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REFERENCES
Books and Journals
Akimova, E. M., Stein, E. M. and Prokhorova, Y. S., 2015. System analysis in the investment
processes management and theoretical principles of the investments
assessment. Journal of Advanced Research in Law and Economics. 6(3 (13)). p.472.
Andonov, A., Eichholtz, P. and Kok, N., 2015. Intermediated investment management in private
markets: Evidence from pension fund investments in real estate. Journal of Financial
Markets. 22. pp.73-103.
Arjaliès, D. L.,and et.al., 2017. Chains of finance: How investment management is shaped.
Oxford University Press.
Bondarenko, Y. G., 2015. Public administration efficiency increase in investment
management. Aktual'ni Problemy Ekonomiky= Actual Problems in Economics. (172).
p.89.
Boučková, M., 2015. Management accounting and agency theory. Procedia Economics and
Finance. 25. pp.5-13.
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
Lan, C., Moneta, F. and Wermers, R., 2015, July. Holding Horizon: A New Measure of Active
Investment Management. In American Finance Association Meetings.
Nalivaychenko, E. V. and Kirilchuk, S. P., 2016. Improvement of the intellectual asset
management in the information economy. Journal of Applied Economic Sciences. 11(4).
pp.662-671.
Sweeting, P., 2017. Financial enterprise risk management. Cambridge University Press.
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