Finance Portfolio Management: Stock Analysis, Investment Strategies

This report focuses on finance portfolio management, aiming to develop a strong investment portfolio with an initial investment of $100,000. It explores the complexities of portfolio management, emphasizing the importance of maximizing returns while minimizing risk. The research involves detailed analysis of financial statements, including profit and loss statements and stock price trends, of companies like Facebook Inc., BHP Billiton Limited, and Alumina Limited. The analysis covers key financial metrics such as revenue, gross profit, net income, and earnings per share to assess the companies' performance over the past five years. The report evaluates the desirability of including these stocks in the portfolio based on their financial health and growth potential, considering factors like consistent improvement in financial performance, market capitalization and dividend yields. It also includes a quarterly investment report, concluding with investment recommendations based on the research.

Running head: FINANCE PORTFOLIO MANAGEMENT
Finance Portfolio Management
Name of the Student:
Name of the University:
Authors Note:

1
FINANCE PORTFOLIO MANAGEMENT
Abstract:
Portfolio management is the process of managing one’s investment with the objective of
providing maximum amount of return on a given rate of risk. Returns in the form of interest,
dividend and capital appreciation are the main concerns of investors looking to invest funds on
shares, debentures, mutual funds or other such investment options. The document shows number
of different stocks that are expected to provide positive returns to the investors over a long period
of time. Investment in these shares are will make a strong portfolio for any investors provided
there is no unexpected turn of incidents deteriorating the performances of these stocks.

2
FINANCE PORTFOLIO MANAGEMENT
Contents
Abstract:...........................................................................................................................................1
Introduction:....................................................................................................................................3
Research:..........................................................................................................................................3
Quarterly Investment report:..........................................................................................................18
Conclusion:....................................................................................................................................23
References:....................................................................................................................................24

3
FINANCE PORTFOLIO MANAGEMENT
Introduction:
Portfolio management is an extremely complex task with lucrative benefits to the ones
who have mastered the art of portfolio management to provide the investors best possible options
to invest with the objective of earning significant return on the amount of investment. Finding
out different stocks to develop a strong investment portfolio is the main purpose of preparing this
document. With $100,000 in hand a strong portfolio shall be developed to maximize the amount
of return on such funds with minimum amount of risk. A detailed discussion on different stocks,
futures and options shall be made to ensure that the final portfolio is extremely strong from the
point of view of investors.
Research:
As mentioned earlier that the investors look for investment options that provide regular
return to the investors in the form of dividend, interest, capital appreciation or any other forms.
The financial statements are the most crucial source of information about any company and its
performance (Habib and Hasan, 2019). The statement of profit and loss shall help the investors
or the portfolio management to assess the past performances of an organization on the basis of
which decision of investment in the company can be made. Apart from the statement of profit
and loss an entity also prepares statement of financial position as part of obligation to prepare
annual financial statements. Statement of financial position describes the financial state and
health of an entity (Kim and Im, 2017). Investors willing to invest for long term would obviously
look for a financially healthy company to invest in. Thus, using the financial statements is the
basic step in identifying the most desirable shares and stocks to include in the overall portfolio of
an investor. Apart from that the stock exchanges where the shares of large corporations are listed
also provide regular share price updates for the investors to follow the fortune of different

4
FINANCE PORTFOLIO MANAGEMENT
companies. Use of the share price information from stock exchange also helps in developing
portfolio. However in the long run the investors and portfolio manager would be benefited if the
decision of investment is taken by assessing the financial performance and position of an
organization from the financial statements of the organization (Knill, 2010).
Facebook Inc.:
Facebook Inc. is a multinational information technology company with its registered head office
situated in the United States of America. One of the biggest companies in all across the globe
Facebook has over the years increased its market capitalization rapidly. Using the statement of
profit and loss of the company shall enable us to understand how the company has performed
over the last five years. In order to determine whether to include the stock of Facebook in the
portfolio the analysis of financial performance of the company over the years is extremely
crucial. Below is the attached profit and loss statement of the company prepared from the annual
reports of the company over the last five years (Kraft and Schwartz, 2014).
INCOME STATEMENT OF FACEBOOK INC
All amounts are in US$ Million
barring per share data
2014-12 2015-12 2016-12 2017-12 2018-12
Gross revenue 12,466.
00
17,928.
00
27,638.
00
40,653.
00
55,838.
00
Less: Cost of gross revenue 2,153.
00
2,867.
00
3,789.
00
5,454.
00
9,355.
00
Gross profit 10,313. 15,061. 23,849. 35,199. 46,483.

5
FINANCE PORTFOLIO MANAGEMENT
00 00 00 00 00
Expenses:
R&D related expenses 2,666.
00
4,816.
00
5,919.
00
7,754.
00
10,273.
00
Sales, General and administrative 2,653.
00
4,020.
00
5,503.
00
7,242.
00
11,297.
00
Total operating expenses 5,319.
00
8,836.
00
11,422.
00
14,996.
00
21,570.
00
Operating income 4,994.
00
6,225.
00
12,427.
00
20,203.
00
24,913.
00
Interest Expense 23
.00
23
.00
10
.00
6
.00
9
.00
Other income (expense) (61.
00)
(8.
00)
101
.00
397
.00
457
.00
Earnings before taxes 4,910.
00
6,194.
00
12,518.
00
20,594.
00
25,361.
00
Income tax 1,970.
00
2,506.
00
2,301.
00
4,660.
00
3,249.
00

6
FINANCE PORTFOLIO MANAGEMENT
Earnings from continuing operations
after tax
2,940.
00
3,688.
00
10,217.
00
15,934.
00
22,112.
00
Net income 2,940.
00
3,688.
00
10,217.
00
15,934.
00
22,112.
00
Preferred dividend 15
.00
19
.00
29
.00
14
.00
1
.00
Earnings available to common
shareholders
2,925.
00
3,669.
00
10,188.
00
15,920.
00
22,111.
00
Basic EPS 1
.12
1
.31
3
.56
5
.49
7
.65
Increase in EPS 0
.19
2
.25
1
.93
2
.16
The profit and loss statement of Facebook Inc. from 2014 to 2018 shows the huge improvement
in the financial performance of the company over the last five years. In 2014 the company earned
a gross revenue of $12,466 million revenue from its business operations which increased to
almost five times within four years period. In 2018 the company earned a staggering 55,838
million thus, registering an increase of $43,372 million within 4 years’ time. Gross profit of the
company in 2018 has increased to $46,483 million from $10,313 million of 2014. Net income of
the company has also followed the same trajectory with net income of $2,940 in 2014 has almost

7
FINANCE PORTFOLIO MANAGEMENT
increased by 9 times to stand at $22,112 million in 2018 (Natividad, 2013). It is only natural that
such extra-ordinary performance will see a huge jump in the earnings per share of the company.
Basic earnings per share of the company for 2014 was $1.12 has increased to $7.65 in 2018. The
biggest plus point for the company has been its consistent improvement in every aspects of
business operations. Each year since 2014 as can be seen from the above profit and loss
statement of the company, the performance of the company has only improved. Whether it is the
amount of revenue or gross profit or net profit or EPS the improvement has been a constant
feature.
The performance of Facebook stock in the stock exchange over the last five years will further
help in assessing the desirability of including the stock in the overall portfolio. The screen shot
below shows the share price trend over the last five years.
It is clear from the graphical trend of the share prices of Facebook Inc. that the share price of the
company has increased continuously over the last five years.
BHP Billiton Limited:

8
FINANCE PORTFOLIO MANAGEMENT
An Anglo Australian company BHP Billiton Limited is one of world’s largest multinational
national companies. The company is a mining, metals and petroleum Oil Company has its
operations spread to different parts of the globe. Like Facebook Inc. let’s dissect the financial
performance of the company with the help of its statement of profit and loss prepared from the
annual reports of the company. Attached below is the profit and loss account of the company
over the last five years, i.e. since 2014 (O. Al-Smadi, 2018).
INCOME STATEMENT OF BHO Billiton Limited
All amounts are in US$ Million
barring per share data
2014-06 2015-06 2016-06 2017-06 2018-06
Gross revenue 67,206.0
0
44,636.
00
30,912.
00
38,285.
00
43,638.
00
Less: Cost of gross revenue 32,086.0
0
24,057.
00
18,721.
00
17,016.
00
17,204.
00
Gross profit 35,120.0
0
20,579.
00
12,191.
00
21,269.
00
26,434.
00
Expenses:
R&D related expenses 43.0
0
13.
00
Sales, General and administrative 7,662.0
0
5,607.
00
4,230.
00
4,256.
00
4,411.
00

9
FINANCE PORTFOLIO MANAGEMENT
Total operating expenses 617.0
0
418.
00
848.
00
1,018.
00
1,029.
00
Operating income 4,562.0
0
6,485.
00
14,372.
00
5,673.
00
6,243.
00
Interest Expense 12,884.0
0
12,523.
00
19,450.
00
10,947.
00
11,683.
00
Other income (expense) 22,236.0
0
8,056.
00
(7,259.0
0)
10,322.
00
14,751.
00
Earnings before taxes 7,012.0
0
3,666.
00
(1,052.0
0)
4,100.
00
7,007.
00
Income tax 15,224.0
0
4,390.
00
(6,207.0
0)
6,222.
00
7,744.
00
Earnings from continuing operations after tax (1,512.0
0)
(2,921.0
0)
Net income (1,392.00
)
(968.0
0)
(178.0
0)
(332.
00)
(1,118.0
0)
Preferred dividend 13,832.0
0
1,910.
00
(6,385.0
0)
5,890.
00
3,705.
00

10
FINANCE PORTFOLIO MANAGEMENT
Earnings available to common
shareholders
13,832.0
0
1,910.
00
(6,385.0
0)
5,890.
00
3,705.
00
Earnings per share 2.6
0
0.
35
(1.
20)
1.
10
0.
69
Unlike Facebook Inc. the financial performance of BHP Billiton Limited has not been consistent
as is clear from the above statement. Opposite to what Facebook has achieved by continuously
increasing its revenue and profits BHP Billiton has suffered decline in its revenue and profit over
the last five years. In 2014 the company earned a staggering revenue of $67,206 million only to
experience continuous decline over the last five years to earn $43,638 million. Gross profit of
2018 stood at $26,434 million as compared to $35,120 million in 2014. Similarly net income and
earnings available to common shareholders have showed same trajectory. Compared to $13,832
million earnings available to common shareholders in 2014 the company only managed to earn
$3,705 million for the common shareholders in 2018. The earnings per share (EPS) of the
company in 2014 was $2.60 which again has reduced to $0.69 per share in 2018 (Velez-Pareja,
2009).
However, despite the fact that the performance of the company has deteriorated over the last five
years still it is a desirable company simply because the company’s performance has turnaround.
If the profit and loss statement of the company followed carefully it can be seen that in 2016 the
performance of the company took a nose dive. The company experience lowest phase with its
profit turning negative in the year 2016. The company has certainly overcome that phase to

11
FINANCE PORTFOLIO MANAGEMENT
improve its performance in 2017 and 2018. The gross revenue gross, profit and earnings
available to common shareholders all improved in the last two years. Thus, considering the scale
of the company and its ability to improve even with such large scale operation the BHP stock is
certainly worth investing in. Thus, in the long run it can be expected that the shares of BHP will
provide significant return to the shareholders in the form of dividend and capital appreciation
(Zaks, 2012).
The above graph shows the fluctuations in share prices of the company over the last five years.
The share price of BHP took tumble during 2016 and 2017 however, the company is at the path
of recovery as the line of share price is moving upward. Thus, considering the share price is not
at its highest this is quite the right time for the investors to invest in the shares to experience
capital appreciation in the future.
Alumina Limited:
Another mining company Alumina Limited was formed in 2003 having it’s headquarter in
Melbourne, Australia. The company is a small company however, it has significant potential as
can be seen from the directors’ statement attached in the annual report. As per the annual report