Assignment on Value Investing

Value investing

1 weighted Average cost of capital (WACC) - The WACC is derived by taking equity weights
of 61.02 percent and debt weights of 38.98 percent. Long term debt of the corporation as given in
the annual report of 2020 is 128233 Canadian dollars and the total equity is 200762 Canadian
dollars. The weights have been multiplied with the cost of debt and equity to determine the
WACC. After multiplying the cost with the weights the WACC comes to 11.13%. The
organization capital is weighted proportionately to compute the WACC. This WACC will be
used by the security analyst to assess a particular investment value (Jikia and Kharabadze, 2017,
p-193). The percentage of 11.13 means that an investor will get a minimum return of 11.13% if
he invest in any company and the company are able to yield only 11.13% of return for its
shareholders or investors.
1-1 Business Risk- There are various kinds of business risks that a business has to face
such as competitive risk, legal risk, strategic risk, compliance risk, economic risk, and
reputational risk. These are the risk which are uncontrollable and are not under the
control of the organization. The probabilities of losses are higher in case of business risk.
A businessman cannot control all these risk factors and the ultimate result will be a loss
to the enterprise. There are many strong competitors of Stuart Olson such as Kinsley
Corporation INC, Plaza Construction Corporation, Pepper Construction Company, and
Perini Corporation. The market value of the company in July 2019 was 95 million
Canadian dollars.

1-2 capital structure- It has also been noticed that in 2014 the convertible debenture was
16675000 Canadian dollars and in 2018 it decreased to 80500000 Canadian dollars. The
conversion rate from debenture to equity has fallen from 2014-2018. The investor or debenture
holders are not interested to convert their holdings into equity. The reason behind the fall is that
they are getting a high rate of interest on their investment.
1-2-1 operating lease and other commitments- The Company to carry its business smoothly
has given on lease certain office equipment, construction equipment, shop facilities and office
under the agreement of operating lease. The organization has received the above amount given in
table 8 for the equipment and offices which has been provided on operating lease. The net
payment which has been received from is decreased in 2018 when it is compared with the
financial year 2014. Under operating lease the owner of the assets only received the rent amount
and the asset is also sold to the lessee as in the case of finance lease. The depreciation amount is
borne by the lessor and is written off in the statement of profit and loss. The asset is returned to
the lessor after its use by the lessor.
1-3 financial risk- Investors such as institutional investors would like to invest in the
company but there are also various types of financial risk which investors should know
before investing. Financial risk is a risk which can hamper the revenue or profit of the
enterprise. If the government cannot control their monetary policy then there can arise
financial risk. Many times the organization cannot pay their financial debt such as loan
taken from any financial institution. This can damage their reputation in the market and

the credit rating of the company will also decrease. The financial risk which an individual
face is that they take wrong investment decision due to which suffered huge losses on
their investment. There are also many financial risk which arises due to macroeconomics
factors such as fluctuation in exchange rate, variation in interest rate, changes in policies
of government, technological changes etc. The management of Stuart Olson uses adjusted
cash flow to measure the operating performance and the cash which are left after the
purchase of capital equipment are used in repaying debts, expansion of business, payment
of dividend, and investing in various portfolio. The macroeconomics and
microeconomics elements which can result in reduction of company profits and revenues
are:
 Inadequate execution in project
 Cancellation and unexpected adjustments of projects
 Unexpected changes in the rate of commodities, natural gas, and oil.
 Errors in the cost estimates
 Guarantees given by company
 Changes in the key management
 Shortages of labor
 Fluctuation in the rate of interest and currency rates
 Different compliances related to law
 Unexpected weather condition
Return on invested capital (ROIC) - Company total actual return in 2014 was 39509000
Canadian dollars and in 2018 the actual return has been recorded at 30351000 Canadian dollars.

The percentage of actual return has shown a downward movement in comparison with the
previous years. Return has been determined after adding all the non-cash expenses and the
finance cost of the enterprise. The earning after deducting the tax amount also decreases in 2018.
This decrease in the return could be due to poor investment or due to effect of macroeconomics
factors.
1 2-1 Operating Cash flow- these are the cash flows which a company gained by its business
operation. If a company earned sufficient operating cash flows then ot can manage its
business operation efficiently.
2-2 Invested capital- In 2014 the company had sufficient capital assets to meet all its current or
short term liability/obligations but in 2018 it has been found that the current assets of the
organization is not sufficient so as to cover all its short term obligations. The goodwill which is
extra profit earned due to reputation of the enterprise has been increased when compared to
2014-2018 financial years. This increase in the goodwill may be due to high quality services
provided by the organization to its clients.
3 NET ASSETS VALUE (NAV) - NAV assist to determine the net value of any organization.
The net value is computed by deducting the total liabilities of the enterprise by the total assets.
NAV is mainly used by the asset management of mutual fund to assess the net value of the
portfolio. The per unit price of the portfolio is determined on the basis of NAV. The net
difference between the organization assets and the organization liabilities is the total net worth of
any corporation. The NAV of Stuart Olson in 2005 was 0.68 per share and in 2020 it was 27.5

per share. In 2020 it can be said that the unit or share of Stuart Olson will be traded at 27.5 per
unit.