Financial Analysis of Macro Plc: Securities and Investment Strategies

This report presents a securities analysis of Macro Plc, a publicly traded general retailer, examining its financial performance and valuation. The analysis includes the calculation of holding period return (HPR) and net profit after tax, comparing Macro Plc's performance to competitors like Kingfisher, Next Plc, M&S, ASOS, and Inchcape. The report delves into financial tools such as the dividend discount model to determine the intrinsic value of shares, and it calculates the intrinsic value of Macro's bonds. Furthermore, it assesses Macro's capital structure through financial leverage ratios (debt ratio, equity ratio, and debt-equity ratio), calculates the total market value, weighted average cost of capital (WACC), and the required return on Macro's shares. The findings indicate that Macro Plc's required rate of return is lower than its rivals, and its capital structure requires improvement to align with industry standards and enhance profitability. The report concludes with a summary of the key findings and references used in the analysis.

Securities Analysis

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Assessing Macro’s net profit and holding period return.............................................................1
Calculation of holding period return (HPR)................................................................................1
Calculation of the intrinsic value of Macro’s shares through dividend discount model.............3
Calculating intrinsic value of Macro’s bonds..............................................................................3
Calculation of Macro’s capital structure......................................................................................4
Calculating Macro’s total market value as well as its weighted average cost of capital.............5
Calculating required return on Macro’s shares............................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Security analysis implies for the evaluation of tradable financial instruments which can
be classified in terms of debt and equity. By making evaluation of the securities investors can
assess the firm which is offering higher returns and thereby would become able to take profitable
investment decisions. The present report is based on the case situation of Macro Plc which is the
publicly traded general retailer and listed on London stock exchange such as FTSE 100. In this,
report will shed light on the expected holding return and net profitability aspect of Macro Plc in
against to the competitors such as kingfisher, Next Plc, M&S, ASOS and Inchcape. Besides this,
report will provide deeper insight about the financial tools such as intrinsic values, WACC and
financial leverage ratios.
MAIN BODY
Assessing Macro’s net profit and holding period return
Net profit after tax 98
Closing price 17.85
Opening price 14.37
Dividend 0.78
Closing price + dividend 18.63
(Closing price + dividend) - opening price 4.26
Holding period return 26.97%
Calculation of holding period return (HPR)

HPR = (Income + Ending Value - Beginning Value) / Beginning Value
Net profit after tax = net profit – tax liability
Net
pro
fit
aft
er
tax Closing price
Open
ing
price
Divid
end
Closi
ng
price
+
divid
end
(Closi
ng
price
+
divide
nd) -
openi
ng
price
Hold
ing
perio
d
retur
n
Next 667
4849.01 (Share prices of
Next Plc, 2017) 7290 1.05
4850.
06
-
2439.
9
-
33.4
7%
Marks and
Spencer Group 407
339.11 (Share prices of
M&S Plc, 2017)
452.4
0 0.07
339.1
8
-
113.2
2
-
25.0
3%
Inchcape 184
688.2 (Share prices of
Inchcape Plc, 2017) 785 0.14
688.3
8
-
96.62
1
-
12.3
1%
FTSE 100 7,142.83
6,274
.05
7,142
.83
868.7
8
13.8
5%
Interpretation: The above depicted table shows that net margin after tax or profitability
aspect of NEXT Plc was good over others. By applying the above depicted formula, it has found
that in the period of HPR offered by Next plc to the investors is high as compared to others.
During the period of 2016, HPR of Macro Plc accounts for 26.97% respectively. On the basis of
tabular presentation, it can be stated that HPR of Macro Plc was also good in against to M&S,
Inchcape and FTSE 100.
Mean or average
return
Standard
deviation Co-variance
Macro Plc 16.11 2.47 0.0016
Next
5230.7
651.0

Marks and Spencer Group
347.5
36.6
Inchcape
661.9
31.1
FTSE 100
6,473.5
406.2
Calculation of the intrinsic value of Macro’s shares through dividend discount model
Intrinsic value of shares = D1 / r - g
Year
Dividen
d per
share
(in £)
Discounting factor
@ 2%
Present
value of
dividen
d
1 0.78 0.98039 3.88
2 0.784 0.96117 3.77
3 0.784 0.94232 3.66
4 0.78 0.92385 3.55
Intrinsic value per
share 14.86
Interpretation: Outcome of dividend discount model shows intrinsic value of Macro’s shares
account for £14.86 respectively which is lower as compared to the closing price of share to a
great extent.
Calculating intrinsic value of Macro’s bonds
Particulars Figures
Par value £100
Maturity 5 years
coupon rate 4%
yield to maturity (5-year 3%

annual-coupon government
bonds)
Computation of intrinsic value
Year
Interest
amount
per bond
(in £)
Discounting factor
@ 3% (United
Kingdom Rates &
Bonds, 2017)
Presen
t value
of
interes
t
1 4 0.971 3.88
2 4 0.943 3.77
3 4 0.915 3.66
4 4 0.888 3.55
5 4 0.863 3.45
Intrinsic value per
bond 18.32
Calculation of Macro’s capital structure
Financial leverage ratios
Debt ratio
Particulars Formula Total liabilities Total assets Outcome
Debt ratio =
Total liabilities /
total assets
Next Plc 2018 2330 .87
M&S 8476 5031 1.68
Inchcape 3037 4381 .69
Equity ratio

Particulars Formula Total equity Total assets Outcome
Equity ratio =
Total equity /
total assets
(Financial
leverage ratios,
2017)
Next Plc 312 2330 .13
M&S 3445 5031 .68
Inchcape 1344 4381 .31
Capital gearing
Debt equity ratio
Particulars Formula Long term debt Shareholders’
equity
Outcome
Macro Plc Solvency ratio =
long term debt /
shareholders
equity
4 125 0.03
Next Plc 615 312 1.97
M&S 1727 3445 .50
Inchcape 289 1344 .22
By doing analysis, it has been identified that, in the year of 2016, debt equity ratio of
Macro Plc was lower as compared to the ideal ratio and competitors. Moreover, as per the ideal
ratio business unit issue 2 equities in against to 1 debt. In contrast to this, debt-equity ratio of
Macro Plc accounted for .03:1 which shows that solvency position of the company was not
sound in 2016. Thus, for developing effectual capital structure firm should keep in mind ideal
ratio such as .5:1 while taking decision in relation to raising funds.
Calculating Macro’s total market value as well as its weighted average cost of capital
Total market value of equity = 125*4.25 = 531.25 million
WACC = ((E / V) * Re) + [((D / V) * Rd) * (1 - T)]
Particulars Figures
Market value of the company's equity (E) 125 million
Market value of the company's debt (D) 4 million

Total Market Value of the company (E + D) 129 million
Cost of equity (Re) 2%
Cost of debt (Rd) 4%
Tax rate 30%
WACC ((125 / 129) * 0.02) + [((4 / 129) * .04) * (1 -
.30)]
WACC .019 + 0009]
= .0199 or 2%
Calculating required return on Macro’s shares
Required rate of return = risk free rate + (Rm * beta value)
Companies /
particulars
Beta RFR R(M) Required rate of
return (in %)
Macro Plc 0.8 2% 2.5 2.02
M&S 1.02 2% 2.8 2.87
Next Plc 0.75 2% 2.5 1.90
Inchcape 1.23 2% 3 3.10
CONCLUSION
From the above report, it has been concluded that required rate of return offered by
Macro Plc is lower as compared to the rival firm such as M&S & Inchcape. Besides this, it can
be inferred that capital or financial structure of Macro Plc is not sound. Thus, for developing
suitable structure and enhance the profitability of firm Macro Plc is required to comply with idea
ratio.

REFERENCES
Online
Financial leverage ratios. 2017. [Online]. Available through:
<https://www.myaccountingcourse.com/financial-ratios/financial-leverage-ratios >.
[Accessed on 29th October 2017].
Share prices of Inchcape Plc. 2017. [Online]. Available through: <
https://uk.finance.yahoo.com/quote/INCH.L/>. [Accessed on 29th October 2017].
Share prices of M&S Plc. 2017. [Online]. Available through: <
https://finance.yahoo.com/quote/mks.l?ltr=1>. [Accessed on 29th October 2017].
Share prices of Next Plc. 2017. [Online]. Available through: <
https://uk.finance.yahoo.com/quote/NXT.L/ >. [Accessed on 29th October 2017].
United Kingdom Rates & Bonds. 2017. [Online]. Available through:
<https://www.bloomberg.com/markets/rates-bonds/government-bonds/uk >. [Accessed on
29th October 2017].