Assessing FMG and OZL: A Comprehensive Analysis of Risk and Return

This report provides a comprehensive analysis of the risk and return profiles of Fortescue Metals Group (FMG) and OZ Minerals (OZL) stocks. It uses various financial metrics such as dividend per share, return on equity (ROE), market value to book value ratio, intrinsic value per share, and sustainable growth rate to assess the investment potential of each stock. The analysis includes a calculation of average yearly returns for both FMG stock and the broader Australian Securities Exchange (AXJO) market, comparing yearly returns from 2014 to 2018. The report concludes that FMG presents a good investment prospect due to its better returns to shareholders, increase in equity value, satisfactory growth opportunities, and effective return on equity, while also acknowledging the importance of considering systematic risk. The findings are supported by references to ASX and Reuters data.


Risk and Return
N8-FINA2006


 Introduction
 Basis of Judgement case 2
 Judgement
 Calculation of risk and return
 Analysis
Table of Contents


 Comparison of FMG and OZL
 Various tools and techniques
 Calculation of risk and return of Stock and
Market prices
 Sustainability of the Stock in comparison to
Market
Introduction

 Dividend per share
 ROE
 Market Value of equity to Book ratio
 Intrinsic value per share
 Sustainable growth of return
Basis of Judgement


Particulars FMG OZL
Market value of
equity to book value
1.67 1.09
ROE 0.22 0.09
Dividend per share 0.24 0.14
Sustainable growth
rate
13.75% 7.51%
Intrinsic Value 0.97 0.02
Contd…


 FMG is a good prospect
 Better returns to the shareholders
 Increase in the value of Equity
 Satisfactory growth opportunities
 Effective return on equity
Judgement


Particulars FMG Stock (AXJO)
Average Yearly
Returns
0.01768 0.03220
Yearly Returns Year
2014
0.3511 0.0858
Year 2015 -0.6384 0.0816
Year 2016 0.3125 -0.1320
Year 2017 1.4563 0.1508
Year 2018 -0. 3069 -0.0012
Calculation of returns


 Satisfactory Year returns
 Yearly returns are similar and even better in some
years
 The position is satisfactory
 The systematic risk is within the range
Analysis


 FMG is a good prospect for investment
 Better and effective returns
 Minimal Subsequent risk
 Value to the shareholders
 Satisfactory growth
Conclusion


 ASX, 2018. Charting. ASX. [Online]. Also available at
https://www.asx.com.au/prices/charting/index.html?
code=XKO&compareCode=&chartType=line&priceM
ovingAverage1=&priceMovingAverage2=&volumeIn
dicator=Bar&volumeMovingAverage=&timeframe=.
[Accessed on 03-05-2018]
 Reuters, 2018. Fortescue Metals Group Ltd
(FMG.AX). Reuters. [Online]. Also available at
https://www.reuters.com/finance/stocks/chart/FMG.A
X [Accessed on 03-05-2018]
References