Waterco Limited Company, Watpac Company and Aberdeen Leaders Company - Assignment Example

Finance portfolio Name Course Tutor Date Introduction Every registered company publishes its stock prices on the stock exchange market so that the traders can be able to find out which company is profitable to invest in. The stock prices tend to vary on daily basis depending on some factors that affects the marketing trends of the products of the company. Therefore, investors go for those stocks that seem to be cheap but would likely increase their prices in future. This paper focuses on the finance portfolio of three Australian companies. These companies include; Waterco limited Company (WAT), Watpac Company (WTP) and Aberdeen Leaders Company (ALR). All these are famous companies hose share stocks are quoted on Australian stock exchange market. Waterco limited company is in the category of the consumer goods industry, it is a water company thus, serves the public with water services. Watpac Company is in the category of capital goods industry while Aberdeen Leaders Company is in diversified finance thus deals with issues to do with financial lending to the investors. As mentioned, these companies participate on the stock exchange market this means that they are effective companies since for any company to be quoted on the stock exchange market; it must show some competence and good reputations. They publish their financial records on the stock exchange and sale their shares of the market. Therefore, investors keep looking at the performance of their shares n the stock market and buy or sell the shares they have already in these firms. The investors, creditors, and the company itself in making some investment decisions consider many factors. Many mathematical and statistical computations are done to gauge the level of the company and compare with other competing firms. The data from these computations are found on the stock exchange market data. This paper shows some of the calculations done by the stock exchange market and the management to know the performance of a particular company. First, the following are the historical opening and closing shares prices of the stocks of these three companies for a period of 28 weeks or seven month. The extracts are as from February 2012 to August 2012 and they are stocks for Fridays alone. Waterco ltd. (WAT) Finance portfolio Retrieved from http://uk.finance.yahoo.com/q/hp?s=CWCO&b=1&a=00&c=2012&e=31&d=07&f=2012&g=d) Date Feb 3 10 17 24 opening 8.12 8.35 8.32 8.49 closing 8.18 8.40 8.32 8.10 Profit/loss 0.06 0.05 0 -0.39 Date March 2 9 16 23 30 opening 8.04 8.24 7.93 7.64 7.83 closing 7.95 8.11 7.63 7.74 7.91 -0.09 -0.13 -0.30 0.10 0.08 Date April 6 13 20 27 opening 7.55 7.39 7.09 7.28 closing 7.51 -7.26 7.08 7.28 -0.04 0.13 -0.01 0.0 Date May 4 11 18 25 opening 7.29 7.16 6.99 7.73 closing 7.25 7.25 6.99 7.59 -0.04 0.09 0.0 -0.14 Date June 1 8 15 22 29 opening 7.58 7.70 7.85 8.04 8.00 closing 7.56 7.99 7.99 8.08 8.08 -0.02 0.29 0.14 0.04 0.08 Date July 6 13 20 27 opening 8.37 8.56 8.29 8.24 closing 8.62 8.67 8.09 8.49 0.25 0.09 -0.20 0.25 Date Aug 3 10 17 24 31 opening 8.09 8.37 8.09 7.94 8.22 closing 8.36 8.40 8.10 8.06 8.16 0.27 0.03 0.01 0.12 0.06 Watpac company (WTP) finance portfolio Retrieved from http://au.finance.yahoo.com/q/hp?s=WTP.AX&a=00&b=1&c=2012&d=07&e=31&f=2012&g) Date Feb 3 10 17 24 opening 1.13 1.17 1.13 1.16 closing 1.12 1.17 1.18 1.15 -0.01 0.00 0.05 0.01 Date March 2 9 16 23 30 opening 1.13 1.05 1.03 1.04 1.00 closing 1.12 1.03 1.04 1.04 0.98 -0.01 -0.02 0.01 0.00 -0.02 Date April 6 13 20 27 opening 0.99 0.95 0.94 0.94 closing 0.98 0.95 0.95 0.91 -0.01 0.00 0.01 0.03 Date May 4 11 18 25 opening 0.92 0.69 0.70 0.69 closing 0.92 0.74 0.70 0.69 0.00 0.05 0.00 0.00 Date June 1 8 15 22 29 opening 0.65 0.58 0.66 0.61 0.59 closing 0.65 0.62 0.65 0.61 0.57 0.00 0.04 0.01 0.00 0.02 Date July 6 13 20 27 opening 0.75 0.70 0.75 0.75 closing 0.72 0.71 0.76 0.71 0.03 0.01 0.01 0.04 Date Aug 3 10 17 24 31 opening 0.73 0.75 0.80 0.78 0.75 closing 0.73 0.76 0.81 0.81 0.78 0.00 0.01 0.01 0.03 0.03 Aberdeen Leaders Company (ALR) finance portfolio Retrieved from http://au.finance.yahoo.com/q/hp?s=ALR&a=7&b=6&c=1996&d=8&e=16&f=2012&g=d&z=66&y=0 Date Feb 3 10 17 24 opening 25.26 26.00 26.17 25.79 closing 25.79 25.76 25.97 25.88 0.53 0.24 0.20 0.11 Date March 2 9 16 23 30 opening 25.30 25.75 25.71 24.88 25.27 closing 25.01 26.01 25.98 24.80 26.1 0.29 0.26 0.27 0.08 0.64 Date April 6 13 20 27 opening 24.50 23.27 24.10 25.37 closing 23.95 22.80 23.88 25.67 0.55 0.47 0.22 0.30 Date May 4 11 18 25 opening 21.43 19.26 18.53 18.61 closing 21.87 19.02 18.60 18.62 0.44 0.24 0.07 0.01 Date June 1 8 15 22 29 opening 18.01 19.27 19.01 18.36 18.91 closing 18.10 19.75 19.05 18.38 19.44 0.09 0.48 0.04 0.02 0.51 Date July 6 13 20 27 opening 20.18 18.56 19.55 18.00 closing 20.07 18.65 19.26 18.37 0.11 0.09 0.29 0.37 Date Aug 3 10 17 24 31 opening 17.79 18.12 18.75 18.84 18.74 closing 18.19 18.26 18.49 18.95 18.78 0.40 0.14 0.26 0.09 0.04 Part1 a) The rate of return (ROR) or return on investment (ROI) is the ratio of money either gained or lost on an investment relative to the amount of money invested. The gained or lost money can be referred to as a profit or a loss respectively, while the money invested are referred to as asset, capital the cost basis or the principal. The rate of return is often expressed in percentage. When calculating the rate of return, we always take the initial value or principal amount subtract it from the final value and then divided by the initial amount. When the Initial amount is represented with Vi, while Final amount Vf. Then the rate of return can be calculated using the formula; R= {(Vf – Vi)/ Vi}100 Therefore rate of return on weekly basis for Waterco ltd are; Feb 3 10 17 24 ROR 6% 5% 0% 39% March 2 9 16 23 30 ROR 9% 13% 30% 10% 8% April 6 13 20 27 ROR 4% 13% 1% 0% May 4 11 18 25 ROR 4% 9% 0% 14% June 1 8 15 22 29 ROR 2% 29% 14% 4% 8% July 6 13 20 27 ROR 25% 9% 20% 25% Aug 3 10 17 24 31 ROR 27% 35 1% 6% 12% The rate of return on weekly basis for Watpac company Feb 3 10 17 24 ROR 1% 0% 5% 1% March 2 9 16 23 30 ROR 1% 2% 05 1% 2% April 6 13 20 27 ROR 1% 0% 15 3% May 4 11 18 25 ROR 0% 5% 0% 0% June 1 8 15 22 29 ROR 0% 4% 1% 0% 2% July 6 13 20 27 ROR 3% 1% 1% 4% Aug 3 10 17 24 31 ROR 0% 1% 1% 35 3% The rate of return for Aberdeen Leaders Company are; Feb 3 10 17 24 ROR 53% 24% 20% 11% March 2 9 16 23 30 ROR 29% 26% 27% 8% 24% April 6 13 20 27 ROR 55% 47% 22% 30% May 4 11 18 25 ROR 44% 24% 7% 1% June 1 8 15 22 29 ROR 9% 48% 4% 2% 51% July 6 13 20 27 ROR 11% 9% 29% 37% Aug 3 10 17 24 31 ROR 40% 14% 26% 9% 4% Part 2 Discreet rate of return time moves forward in increment with each increment having a rate of return equal to 1. The more frequent the compounding, the higher the rate of return. On the other hand, continuous rate of return associated with a holding period is found by taking the natural of 1+holding – period return. Continuous rate of return ln (rate) For the first Friday of every month from February to August Waterco ltd Month Feb 3 March2 April 6 May 4 June 1 July 6 Aug 3 Continous ROR LN(6) 1.79 Ln(9) 2.2 Ln(4) 1.3 Ln(4) 0.3 Ln(2) 0.6 Ln(25) 3.2 Ln(27) 3.29 Watpac company Month Feb 3 March2 April 6 May 4 June 1 July 6 Aug 3 Continous ROR Ln(1) 0 Ln(1) 0 Ln(1) 0 Ln(0) 0 Ln(0) 0 Ln(3) 1.1 Ln(0) 0 Aberdeen leaders company Month Feb 3 March2 April 6 May 4 June 1 July 6 Aug 3 Continous ROR ln(53) 3.97 ln(29) 3.36 ln(55) 4.0 ln(44) 3.78 ln(9) 2.2 Ln(11) 2.3 Ln(40) 3.86 Part 3 The variance of returns The variance of a portfolio reflects the variance of the stocks that make up the portfolio, it also reflects how the returns on the stocks that comprise the portfolio (Globusz, 2012). The covariance of a stock is how the returns on a pair or two stocks vary together. The covariance of two stocks can be calculated using the following formula. Cov (R1,R2)={P1(R1i-E[R1])(R2i- E{R2]) Where N=number of states P1=probability state R1i =return on stock E(R1)=expected return on stock1 R2i=return on stock 2 in state i E(R2)= expected return on stock 2 Correlation coefficient between the returns on two stocks is calculation by the following formulae Corr (R1,R2)=Cov (R1,R2)/SD(R1)SD(R2) Where R12= Correlation coefficient between the returns on stocks 1 and 2 SD=the standard deviation Risk return is the gain the investor has got from investing in a number of stocks. The investors do not risk their investment just only in one stock, they take a portion for each stock so that when a loss happens, they incur a partial loss, and thus they spread the risk. Security characteristic line is a regression line showing the performance of a particular stock portfolio against that of the market portfolio at every point. Security characteristic line is found by the following formula. SCL: Ri,t –Rf=Xi +Bi (Rm,t –Rf) +Ei,t WhereXi =is the asset of alpha or abnormal return Bi (Rm,t-Rf) is non diversifiable or systematic risk Ei is diversifiable idiosyncratic risk Part 4 Australian stock exchange (ASX) is a stock market, which is a multi-asset class, vertically integrated exchange group. It is one of the world’s top ten-exchange markets basing on the market capitalization (Grieve, Musgrave, Mitchell &Keeley, 2010). Some of the activities of this stock exchange market span around primary and secondary services, risk transfer and security settlement for equities and fixed income markets. It operates as a clearinghouse, market operator and payment system facilitator. Moreover, this stock exchange market it promotes standard corporate governance in Australian quoted companies. ASX operates in a market that has the fourth largest investment fund asset pool globally and the largest in Asia pacific region. ASX has laid some basic requirements that have to be fulfilled by any company seeking to be listed on its stock exchange. One condition is that the entity must have been registered in a world federation of stock exchanges (WFE) (Grieve, Musgrave, Mitchell &Keeley, 2010). Secondly, the firm should have had profit of $200 million before tax in every of the last three years; or the firm should have at least $2,000 million net tangible assets. Then the last condition is that the company should have at least 1,000 shareholders having securities that have a value of over $500. These conditions are strictly followed and some companies find it hard to attain them. Therefore, for a company to be listed on this stock exchange should be effective in its operation. Some of the benefits that accrue to those companies quoted on ASX are; first, the firm would be in good company since the Australian market is a home of many foreign famous companies hence it would enjoy the international profile (Grieve, Musgrave, Mitchell &Keeley, 2010). Secondly, in Australia, there is a high public and investor profile, therefore, being listed on this stock market would enhance the firm’s profile where the demand of the shares would be sustained hence boosting the reputation. Thirdly, the listed company enjoys the access to capital resources. ASX provides the opportunities to the listed companies to raise capital at the time of listing through a variety of innovative and flexible capital raising mechanism. The fourth advantage is that under Australian taxation system script-for-script offers often provides capital gains tax rollover relief for the investors. This increases the likelihood of successful transaction (Grieve, Musgrave, Mitchell &Keeley, 2010). The listing also provides the access to both professional institutional investments from a funds management industry that is amongst the world’s largest. Lastly, the listing enables the company to access to an educated and knowledgeable retail investment society. Australia has one of the highest retail ownership all over the world hence any firm listed would enjoy all retail customers. Bibliography Douglas, Mark. (2000). Trading in the zone. Master the market with confidence, discipline and winning attitude. New York institute of finance. Elder, Alexander &Guppy, Dary. (1996). Share trading: An approach to buying and selling. Writebooks. Grieve, Eddie. Musgrave, Andrew. Mitchell David &Keeley, James (2010). “International listings on ASX: Road to growth and opportunity”. Retrieved from http://www.asxgroup.com.au/media/PDFs/international_listings_on_asx_brochure.pdf Globusz. (2012). 12 portfolio risk and return. Retrieved from http://www.globusz.com/ebooks/Valuation/00000022.htm Turner, Toni. (2000). A beginners guide to day trading online. Media Adams a.finance.com. (2012). Aberdeen Leaders company. Retrieved from http://au.finance.yahoo.com/q/hp?s=ALR&a=7&b=6&c=1996&d=8&e=16&f=2012&g= d&z=66&y=0 a.finance.com. (2012). Consolidated Waterco ltd. Retrieved from http://uk.finance.yahoo.com/q/hp?s=CWCO&b=1&a=00&c=2012&e=31&d=07&f=2012 &g=d CFA level 1Study guide. Quantitative methods- Discreet and continuous compounding. Retrieved from http://www.investopedia.com/exam-guide/cfa-level-1/quantitative- methods/discrete-continuous-compounding.asp#axzz26i5frlXd au.finance. (2012). Watpac ltd. Retrieved from http://au.finance.yahoo.com/q/hp?s=WTP.AX&a=00&b=1&c=2012&d=07&e=31&f=20 12&g=d MSCI. (2011). Global equity indices. Retrieved from http://www.msci.com/products/indices/ Read More