FINM202 Financial Management: Share Valuation and Risk Analysis Report

This report provides a detailed analysis of share valuation for Millennium Tutoring using zero-growth, constant-growth, and non-constant growth models, highlighting the impact of growth factors and required rates of return on share price. It further discusses the crucial role of risk management in corporate finance, differentiating between systematic and unsystematic risks and outlining strategies for mitigating controllable risks. The report identifies various components of systematic risk, including interest rate risk, inflationary risk, and market risk, and explores unsystematic risks such as business risk, financial risk, and operational risk, emphasizing the importance of diversification and risk management procedures in investment decisions. Desklib offers a wealth of resources, including solved assignments and past papers, to support students in their academic endeavors.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Part A: Valuing Shares...............................................................................................................2
a. Using the relevant model to detect the current value of Millennium Tutoring and depicting
its share value:............................................................................................................................2
b. Using the relevant model to detect the current value of Millennium Tutoring and depicting
its share value:............................................................................................................................2
c. Using the relevant model to detect the current value of Millennium Tutoring and depicting
its share value:............................................................................................................................2
d. Providing relevant discussion on feature(s) that drives the differing valuation of
Millennium Tutoring:.................................................................................................................3
Part B: ‘Risk management is one of the key functions of corporate finance’............................3
Reference and Bibliography:......................................................................................................7

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Part A: Valuing Shares
a. Using the relevant model to detect the current value of Millennium Tutoring and
depicting its share value:
Particulars Value
Earnings per share (A) 1.50$
Return to investors (B) 12%
Share price (C=A/B) 12.50$
Zero growth Model
b. Using the relevant model to detect the current value of Millennium Tutoring and
depicting its share value:
Particulars Value
Earnings per share (A) 1.50$
Return to investors (B) 12%
ROE (C) 13%
Expected dividend payout ratio (D) 30%
Retention ratio (E=1-D) 70%
Growth rate (F=E*C) 9.100%
Share price [((A*(1+F))*D)/(B-F)] 16.93$
Constant growth Model
c. Using the relevant model to detect the current value of Millennium Tutoring and
depicting its share value:
Particulars Value
Dividend (A) 1.50$
Expected dividends (B) 30%
Required rate of return (C) 12.00%
Growth rate (D) 20%
Dividend (E) 0.45$
Growth (F) 50.00%
Constant rate (G) 9.00%
Non-constant Growth Valuation

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Particulars Value (1) Dis-rate (2) Dis-Value (1*2)
D1 [H=E*(1+F)] 0.68$ 0.892857143 0.60$
D2 [I=H*(1+D)] 0.81$ 0.797193878 0.65$
D3 [J=I*(1+D)] 0.97$ 0.711780248 0.69$
D4 [K=(J*(1+G))/(C-G) 35.32$ 0.593150207 20.95$
22.89$Share price
d. Providing relevant discussion on feature(s) that drives the differing valuation of
Millennium Tutoring:
From the overall calculations that are conducted in the above tables, it could be
identified that growth factors in the dividend is relatively changing the auto share price value
of an organization. Alterations in growth factors and the required rate of return that is
provided by the company are molding the share price of Millennium Tutoring. There are
different models that can be used by investors for detecting the overall share price of an
organization, which is mainly used in the above calculations to determine the share value of
Millennium Tutoring under different circumstances. Investors can use zero growth model,
constant growth model, and non-constant growth model to determine the overall share value
of an organization (Williams and Balaz 2015).
Part B: ‘Risk management is one of the key functions of corporate finance’
Investors by utilizing the risk management factors are able to reduce the composition
of risk that is involved in the investment. Investors by utilizing the risk management methods
are relatively able to reduce the level of systematic and unsystematic risk factors that
affecting their investments in a particular organization. Moreover, the risk management also
helps in segregating the systematic and unsystematic risk of an organization, which allows
the investors to make adequate investment decisions. However, detection of systematic and
unsystematic risk relatively allows the investors to utilize the risk management process to
mitigate risk involved in their Investments. The detection of this risk relatively allows the

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overall investors to reduce the level of negative risk that might affect their investments in
future. The risk involved in investments can be segregated between systematic and
unsystematic risk, which Investors can mitigate with the help of adequate measures.
However, from the relevant evaluation, it could be identified that Systematic risk involved in
an investment cannot be mitigated by any kind of measures taken by the investors (Yuan and
Lee 2015). Systematic risk is not control by the organization and is considered macro in
nature where the actions taken by the management cannot alter the risk factors. Nevertheless,
the systematic risk directly involves the overall risk that is provided by the external factors
such as government decision and policies implemented organization. Hence, investors cannot
mitigate the systematic risk involved in investment, as it needs to be considered by the
investors to achieve relevant Returns from the exposure.
There is relevant unsystematic risk, which is controllable by the organization and is
considered to be micro in nature. Hence, investors can adequately utilize different risk
management strategies to mitigate the unsystematic risk involved in investments. The
investors with the help of adequate investment strategies are able to mitigate the control risk
that is affecting their Investments. Moreover, unsystematic risk is controllable by
organization adequate the management to control the risk that is affecting their operations can
implement strategies. Park, Song and Lee (2017) stated that with the presence of
unsystematic and unsystematic risk the investors use diversification method to mitigate the
risk involved in their investments.
Three different components of Systematic risk Such as interest rate risk, inflationary
risk and market risk negatively affect the overall investment exposure of an investor. The
three identified risk directly affect the overall operations of the organization, which in turn
reduces the capability of the management to produce high yield gains in their financial report.
Systematic risk identified in the above section cannot be controlled by the organization as it

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is beyond the scope of the management to alter the economic growth and conditions of a
country. Moreover, interest rates, which are relatively subdivided into two different risks
such as price risk and reinvestment, risk. Therefore, the rising interest rates Indian economy
would directly affect the overall share price of an organization, which is would have negative
impact on its future prospects. Moreover, the rising reinvestment risk will directly affect its
dividend, which would not be invested with the same rate of return (Marshall 2015).
Market risk is considered to be the third major systematic risk component that is
affect the overall operations of an organization. There are different types of market risk such
as relative risk, directional risk, absolute risk, non-directional risk, volatile risk, and basic
risk. Moreover, the different level of risk has problems, which relatively reduce the financial
capability of the organization. This in turn affects price of an organization and uses its capital
market value, which in turn increases the volatility in their pricing. Therefore, it could be
understood that market risk negatively affects share price value and market capitalization of a
company.
Inflation risk is the third major component of systematic risk, which is subdivided into
demand inflation risk and cost inflation risk. Identified risk directly affects your all operations
of the organization where both the demand and cost conditions are affected. This is relatively
reduces the financial capability of the organization to maintain high profitability from its
operations. Therefore, the organization and investors to secure their investment exposure
cannot control the systematic risk (Wang 2014).
The Unsystematic risk relatively indicates about the overall problems that are faced
by the organization, which can be mitigated with adequate investment strategies. Different
types of unsystematic risk such as business risk, financial risk, and operational risk. The
management can adequately control all the relevant identified risk with adequate risk
management procedures. The business is relatively divided into funding liquid and acid liquid

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risk, which negatively affect the overall operational capability of an organization. However,
the acid liquid risk relatively arises due to the losses that have been incurred by selling the
assets at lower value. Due to the low funding available to the organization overall assets are
sold less than its book value.
Financial risk is further divided into recovery rate risk, exchange rate risk, non-
directional risk, settlement dress, and sovereign risk. Therefore, the financial risk can be
considered a major concern for the organization, which can be medicated with the help of
adequate risk management procedures. Therefore, relatively affects capital of the firm, which
is used for supporting their operations. The operational risk is the last component of the
unsystematic risk that is directly affecting the financial capability of an organization.
Operational risk relatively indicates about the legal risk, political risk, model risk, and people
risk that affect the operations of an organization (Matthew 2017).

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Reference and Bibliography:
Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working capital
management, corporate performance, and financial constraints. Journal of Business
Research, 67(3), pp.332-338.
Bekaert, G. and Hodrick, R., 2017. International financial management. Cambridge
University Press.
Burtonshaw-Gunn, S.A., 2017. Risk and financial management in construction. Routledge.
Hinz, O., Nofer, M., Schiereck, D. and Trillig, J., 2015. The influence of data theft on the
share prices and systematic risk of consumer electronics companies. Information &
Management, 52(3), pp.337-347.
Karadag, H., 2015. Financial management challenges in small and medium-sized enterprises:
A strategic management approach. EMAJ: Emerging Markets Journal, 5(1), pp.26-40.
Kiselakova, D., Horvathova, J., Sofrankova, B. and Soltes, M., 2015. Analysis of risks and
their impact on enterprise performance by creating Enterprise Risk Model. Polish Journal of
Management Studies, 11.
Marshall, C.M., 2015. Isolating the systematic and unsystematic components of a single
stock’s (or portfolio’s) standard deviation. Applied Economics, 47(1), pp.1-11.
Matthew, B.T., 2017. Financial management in the sport industry. Routledge.
Park, S., Song, S. and Lee, S., 2017. Corporate social responsibility and systematic risk of
restaurant firms: The moderating role of geographical diversification. Tourism
Management, 59, pp.610-620.

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Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D. and Burrow, M.,
2015. Financial management: Principles and applications. Pearson Higher Education AU.
Tóth, M., Lančarič, D., Piterková, A. and Savov, R., 2014. Systematic risk in Agriculture: A
case of Slovakia. Agris on-line Papers in Economics and Informatics, 6(665-2016-45036),
p.185.
Wang, X.S., 2014. Financial management in the public sector: tools, applications and cases.
Routledge.
Williams, A.M. and Baláž, V., 2015. Tourism risk and uncertainty: Theoretical
reflections. Journal of Travel Research, 54(3), pp.271-287.
Yuan, F.C. and Lee, C.H., 2015. Using least square support vector regression with genetic
algorithm to forecast beta systematic risk. Journal of Computational Science, 11, pp.26-33.