Finance Report: TVM, Risk, Return Analysis for a Business Case Study

This finance assignment report provides a comprehensive analysis of financial concepts, specifically focusing on time value of money (TVM), bond valuation, and risk and return analysis within the context of a business case study. The report begins with calculations related to discounted values, growth rates, effective interest rates, installment payments, and yield to maturity. It then delves into risk and return estimates using the CAPM model and portfolio analysis. The core of the report involves a detailed examination of a specific company's financial performance, including an overview, financial performance metrics, and risk and return measures. Key financial ratios such as P/E ratio, Beta, share price ratios, dividend yields, and profitability metrics are analyzed and compared to industry averages. The report concludes with an assessment of the company's management effectiveness and provides recommendations based on the financial analysis.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Author’s note:

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Table of Contents
Answer to question 1: TVM and Bond valuation............................................................................2
Sub part (a):.................................................................................................................................2
Sub part (b):.................................................................................................................................2
Sub part (c):.................................................................................................................................3
Sub part (d):.................................................................................................................................3
Sub part (e):.................................................................................................................................4
Sub part (f):..................................................................................................................................4
Answer to question 2: Risk and return estimates.............................................................................5
Sub part (a):.................................................................................................................................5
Sub part (b):.................................................................................................................................5
Answer to question 3: Risk and return analysis of the company:....................................................6
Overview of the company:...........................................................................................................6
Financial Performance:................................................................................................................6
Risk and Return measures of the company:..............................................................................14
Conclusion and recommendation:.............................................................................................14
References and bibliography:........................................................................................................15

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Answer to question 1: TVM and Bond valuation
Sub part (a):
Discounted value of the installment can be computed by discounting the quarterly
installments, which will be received from the sales contract in future. The payment will be
received at the end of every month, and by applying a 7% discount rate, the total discounted can
be computed as $1,215,222.
Sub part (b):
The annual growth rate in sales is taken as 6.60%. The growth will be achieved over the
next years annually; hence, the growth rate needs to be compounded with the current sales
volume to get the expected sales amount of the future years. In the given case study, the sales of
the fifth year have been computed by compounding the 6.60% growth rate with the current sales
of $5,731,100 and arrived at $7,889,037.

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Sub part (c):
Effective annual interest rate means, the equivalent annual rate of interest payment of the
respective interest period throughout the year. In the given case study, the interest payment
interval is different for three of the loan options. For the Loan option, A it is monthly
compounded, for the loan option B it is semiannually compounded and for the loan option C it is
compounded daily. Taking into consideration the interest rates and total interest payments in a
year the annual effective interest rate has been computed.
Sub part (d):
The company is planning to purchase a property for $574,000, which they want to
finance fully by the loan. The loan requires an interest of 3.80% and a quarterly installment
payment. Considering 10 years for repayment of the loan, the installment amount has been
computed applying the compounding technique, which comes to $17,316.

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Sub part (e):
Yield to maturity means the total of return, which an investor can earn from an
investment from purchasing the investment until the maturity of the investment. In the given case
study, the company has issued a $100 par value bond for $109.5 and it will mature in 8 years.
Considering the coupon rate of the bond to be 7.05% the total yield to maturity as a percentage
of the investment amount can be computed to 5.55%. It means an investor can earn 5.55% of
return from investing fund into the bond of the company and holding it until the maturity.
Sub part (f):
In this case study, the current price of the bond have been computed by discounting the
par value of the bond by the required rate of return, and then the seminally payment of coupon
have been computed taking the coupon rate of the bond. Taking all this factors in consideration,
it comes to $52 as the semiannual coupon payment.

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Answer to question 2: Risk and return estimates
Sub part (a):
The company risk coefficient has been taken from the given source for calculations. As
per the latest source and records, the yield to maturity of an Australian Government bond is
1.95%, which is taken as the risk free rate. The company beta has been takes as 1.25 as per the
latest source and record as on 20 April 2019. Applying the CAPM model the expected return of
the BLD and the another company has been computed to be 9.45% and 0.75%. For the second
company it is too low because of less risk assumption by the company..
Sub part (b):
Taking 50% of the stocks of BLD and 50% of the hypothetically selected company as
shown above, a portfolio can be computed to earn a stable return from the portfolio. It can be
noticed that the hypothetically selected company is having a negative beta, which implies very

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less risk in investing in the stocks of the company. Taking into consideration these two factors
total return of the portfolio has been computed to 5.10%.
Answer to question 3: Risk and return analysis of the company:
Overview of the company:
Boral Limited is an ASX listed Australia based Construction Company dealing in
construction materials and various other construction services. They mainly supplies
construction materials such as asphalt, ash, blocks, bricks, cement, additives and concretes. The
company has been a well-established and well performing company since last couple of years
(boral.com 2019). Their shares are currently quoting at 4.87 AUD in the Australian Stock
Exchange. They have gone through various peak and tough situation, but their implementation of
strategies in time helped them to achieve a sustainable growth in the long term.
Financial Performance:
For the last couple of years there growth rate in sales has been decreasing, the average
growth rate for the last five years was 38.83 % and now it has come to 6.60% only. Subsequently
there is a decreasing growth rate in their profit margin, which implies their inefficient
management of the operating costs. However, on the efficiency side of the company they are
showing a good mark in their financial performance. Their financial parameters show a good
strength of their financial performance. Their current return on assets is 4.40 while a 5 years
average is 3.58. Their current return on investment is 4.98 against their 5 years average of 4.32,
but as compared to the industry performance, they are not doing well. The industry average
return on assets is 4.76 and the return on investment is 5.94 (reuters.com 2019).

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There is volatility in their stock prices in the market; the fluctuation in their stock price
for the last one year can be shown in the following graph.
They are having a quick ratio of 1.11, which is above the standard, and it implies their
short-term solvency, on the other hand, their current ratio is not satisfactory. They are having a
total debt to equity ratio of 40.07, which implies the company is a highly leveraged company
using huge amount of debt capital to finance their long-term assets. Their profitability is also
significant, ad having a growth in the profit. Though the company is adding huge amount of debt
capital in their capital structure they are still unable to utilize the advantage benefits, their price
earnings ratio is still below the industry average (reuters.com 2019). They should have managed
their capital structure more efficiently and make the optimal combination of debt and equity to
generate more return on the assets of the company. Their key financial performance measures
have been tabulated as under with a comparison to the industry average. The table shows three
columns, one is for the company, other for the Industry and the third column for the respective
sector of the company.

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P/E Ratio (TTM) P/E High - Last 5 Yrs. P/E Low - Last 5 Yrs.
0
20
40
60
80
100
120
140
Company
Industry
Sector
It can be seen from the above chart that, the company is performing marginally well in
terms of P/E ratio. P/E ratio implies the price to earnings ratio; it establishes a relationship
between the market price of the share and the earnings per share.

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Company Industry Sector
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Beta
Beta
From the above figures and graphs, it can be observed that, the company is having
a lower risk coefficient as compared to the respective sector and the industry. It means the
company is assuming less debt capital to finance their fixed assets.
Price to Sales
(TTM) Price to Book
(MRQ) Price to
Tangible
Book (MRQ)
Price to Cash
Flow (TTM)
0
5
10
15
20
25
30
35
40
45
50
SHARE PRICE RATIOS
Company
SHARE PRICE RATIOS
Industry
SHARE PRICE RATIOS
Sector

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From the above graph depicting the performance in terms of share price, it can be said
that the company is performing significantly poor in all the price ration parameters. They need to
improve their operations and generate more revenue to secure a good performance in this regard.
Dividend Yield Dividend Yield - 5
Year Avg Dividend 5 Year
Growth Rate
0
5
10
15
20
25
DIVIDENDS Company
DIVIDENDS Industry
DIVIDENDS Sector
From the above figures relating to the dividend payouts and the graphs showing the
comparative performance of the company, it can be concluded that, their current dividend yield
is above the sector average and above the industry average. Their growth rate in the dividend
payment is also much higher than the industry average.