Managing Finance: Analysis of Amaysim and Telstra Stocks, WACC, Dividend Policy and Share Purchase

RUNNING HEAD: MANAGING FINANCE
managing finance

Managing finance 1
Contents
Introduction...........................................................................................................................................2
Systematic and Unsystematic risks........................................................................................................2
Weighted average cost of capital...........................................................................................................2
Dividend policy.....................................................................................................................................5
Share purchase.......................................................................................................................................8
Conclusion.............................................................................................................................................8
References...........................................................................................................................................10

Managing finance 2
Introduction
The procedure of evaluating and examining the stocks and instruments of a particular
company is known as stock analysis. The process is employed by the analyst who are
interested in knowing the past movements in the stock prices and market performance.
Furthermore, the analysis is helpful for many investors and traders as their decisions of
buying and selling the shares depends upon the results of the analysis. Critical examination of
the past movements help in predicting the future performance and trends in a stock and
market index (Edwards, Magee & Bassetti, 2012).
This report contains the analysis of the stocks for Amaysim Australia Limited and Telstra
Corporation Limited, compared with the market index ASX S&P 200. It includes the
calculation of systematic and unsystematic risk by figuring out the daily returns of
companies’ stock and the market. In addition, the report also discusses the WACC and
dividend policy of both the companies, reflecting their performance in past three years that
are 2015, 2016 and 2017. In the later part, recommendation is been provided regarding the
purchase of shares of one of the two companies, followed by conclusion.
Systematic and Unsystematic risks
Note: Please find the attached excel file for the calculation performed in the report.
Weighted average cost of capital
WACC represents the cost of capital of the firm comprises of the debt and equity elements,
proportionately weighted. It is been calculated by identifying the cost of equity and cost of
debt of the firm. Usually, the operations of an organization are financed through debt and

Managing finance 3
equity that make up to the total capital of that corporation. It is very important for the entities
to maintain a preferred and optimal capital structure to remain profitable in long run.
However, calculation of WACC is important for the investors and lenders to figure out the
returns, they are expected to receive on their investment (Fernandes, 2014). The weighted
average cost of capital of a company increase as and when the amount of its beta factor and
return on equity rises. Such upsurge in the cost of capital reflects high risk and low valuation.
However, there are many reasons for the fluctuations and differences in the companies’
WACC.
2015 2016 2017
Weig
hts
(A)
Cost
of
capital
(B) A*B
Wei
ghts
(A)
Cost of
capital
(B) A*B
Wei
ghts
(A)
Cost
of
capital
(B) A*B
Equity
-
1.92 2.7%
-
0.0523 0.69 6.7%
0.046
7 0.48 2.6%
0.012
3
Debt 2.92 2.2% 0.0633 0.31 8.5%
0.026
3 0.52 2.9%
0.015
1
WACC 1.10% 7.30% 2.74%
In case of Amaysim Australia Limited, the WACC of the company increases from 1.10% to
2.74% over the period of past three years. This was basically due to a significant upsurge in
its debt component from $3,973,000 to $82,558,000. However, when compared between
2016 and 2017, the WACC reduces from 7.30% to 2.74%. This change was due to the
reduction in company’s cost of debt and cost of equity. The reason for this reduction is the
fluctuations in the value of beta of AYS which affected its cost of equity over the past three