Essays on Corporate Valuation And Risk Management Assignment

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AbstractInvestors usually make their investment decisions based on data that is available concerning value of a company. An investor must first determine the risk involved in any investment, and the returns that will be associated with the same investment. A worthy investment should be one that has high risk accompanied by high returns or with low risk, and lower returns. A cost benefit analysis should be taken to determine if an investment is feasible according to the goals of the investor. An investor may either have long or short term goals for investing.

The returns to an investment may be determined by the calculation of the dividends that are associated with a company. A company that is more worth would be an advisable investment since returns would be assured at the end of the day. The analysis report below will give a justification of the values attached to investments made in Woolworths and a report determining if an investment in Woolworths is worthwhile or not. IntroductionWoolworths is a company that is based in Australia. The company mainly deals with liquor and food products used for resale in New Zealand and Australia supermarkets.

The sales of the company have been increasing over the years. The increase in sales may be as a result of diversification of the company’s operations. The company does not base its operations in only one country and that increases the sales volume of the company. The sales volume of the company can also be associated with dynamic advertising. The operating income of the company also increases over the years. The increase in operating income may be associated with minimization of the company’s expenses.

The expenses of the company are minimized as a result of efficiency in a company. Efficiency may be achievement from operations of the company. The valuation of a company can be done by calculating the weighted average cost of capital. The value of the company is used to show the net worth of the company’s assets and shareholders wealth. The value of equity of a company is a part that is fundamental in financial matters as a result of its implications that are critical in the valuations of the company wealth. Measurement Of Company’s Value: The weighted average cost of capital signifies the total cost of the company’s portfolio.

The portfolio to a company should be diverse in order to minimize the risks attributed to portfolios. The ability of a company to diversify in different sectors would ensures that it posts relevant returns that are all rounded since the failure of one portfolio would probably not affect another portfolios for which it has invested. In Woolworths, the company has diversified its operations in a manner that allows it to handle its operations in a number of countries. In the Australian stock yields and index, bonds and bills are usually reported on the basis of the actual value.

The bills are affected by inflation. Inflation rates are usually determined in the course of valuating a company. In most instances, it is usually assumed that nominal and real returns on equity are similar because of the effects of inflation which have been accounted for in the course of valuating both the bonds and equity return rates. However, the assumption is not true because risk premium for equity is usually determined by the difference between bond discrete returns and equity.

That makes it necessary for the reporting of risk premiums using both the nominal and real amounts. According to Boudoukh and Richardson (1993), measurement of inflation is done by measuring the return on a consumer price index (CPI).

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