FINA2006 Principles of Finance: FMG Share Investment Recommendation

This presentation provides a financial analysis of FMG Ltd shares, comparing it with a peer company (OZL) and the broader market (AXJO) based on key metrics such as Return on Equity, Dividend per Share, Sustainable Growth Rate, Equity to Book Value Ratio, Intrinsic Value per Share, Average Monthly Return, Yearly Returns, Average Yearly Return, and Total Risk. The analysis favors FMG due to its higher profitability ratios, dividend per share, sustainable growth rate, and intrinsic value. The recommendation suggests that investors consider FMG, especially those capable of taking on higher risk for potentially higher returns. This document is available on Desklib, a platform offering a wide range of study resources, including past papers and solved assignments.

BUSINESS FINANCE

RETURN ON EQUITY
FMG has a higher profitability
ratio when compared to the peer
company OZL. Hence, FMG is
reflecting a better financial
performance.
FMG OZL
0
5
10
15
20
25
Return on equity
Return on
equity

DIVIDEND PER
SHARE
FMG has a higher dividend
per share than OZL that
reflect financial stability
and good financial health
of the company. Hence,
according to this analysis
FMG is
recommended. FMG OZL
0
0.05
0.1
0.15
0.2
0.25
0.3
Dividend per share
Dividend per
share

SUSTAINABLE
GROWTH RATE
An investor wants to invest
in company in which there is
a growth opportunity.
Higher growth results in
higher returns. Therefore,
investors are recommended
to invest in FMG because of
sustainable growth rate.
FMG OZL
0
2
4
6
8
10
12
14
16
Sustainable growth
rate
Sustainable
growth rate

.
EQUITY TO BOOK VALUE
RATIO
This ratio helps in the valuation of the
company. A higher market to book value
assets indicate how much equity
investors are willing to pay for each dollar
in net assets. As investors are willing to
pay more in FMG, it is recommended. FMG OZL
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Equity to book value
ratio
Equity to book
value ratio

INTRINSIC VALUE
PER SHARE
Intrinsic value is the
estimate of the true
picture of the company.
It is obvious that the
investors would want to
invest in the company
higher intrinsic value.
Therefore, FMG is
recommended. FMG OZL
0
20
40
60
80
100
120
Intrinsic value per
share
Intrinsic value
per share

AVERAGE MONTHLY
RETURN
The average monthly return is a
sign of good profitability of the
company. Hence, the investors
must invest in FMG.
FMG AXJO
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Average monthly
return
Average
monthly return

YEARLY RETURN
There are investors who
invest for long term so it
is not sufficient to earn
higher profits only in
specific months. It should
earn higher profits
continuously for wealth
maximization. Based on
this FMG is
recommended. FMG AXJO
0
10
20
30
40
50
60
70
80
90
Yearly returns
Yearly returns

AVERAGE YEARLY
RETURN
The average yearly
return is substantially
high for FMG.
Therefore, FMG is
recommended.
FMG AXJO
0
2
4
6
8
10
12
14
16
18
Average yearly return
Average yearly
return

TOTAL RISK
Risk and Return comes
hand in hand. In order
to get higher returns, an
investor has to take
higher risk. So, if FMG is
providing higher return
in return of the higher
risk. Then investors who
are capable of taking
such risk should invest in
FMG. FMG AXJO
0
2
4
6
8
10
12
14
Total risk
Total risk