INVESTMENT ANALYSIS

Investment Analysis



Investment Analysis

Introduction

An investment is an outlay of money or other fluids of financial resources, in order to obtain net profits in the future. The company must invest to the increased volume of stock of the company or in assets either to improve or enhance the production process or management. The investment analysis will also have to consider the risk of it, which is expressed by the volatility of the NPV or the likelihood that you cannot meet the expenditures required to continue the project. Usually this analysis is performed using a sensitivity analysis.

In this paper we will invest in Five stock listed in the London Stock Exchange main market after analyzing their Share prices trend, average yearly returns for each companies, average return of the FTSE100 over the same periods.

Discussion

Investment in Banking Sectors

Company Name

Shares prices on 04/01/2000

Shares prices on 31/12/2009

Share prices 10/04/2012

Dividends

Betas

 

 

 

 

 

 

Barclays PLC (BARC.L)

111.5

17.6

13.01

0.3806

2.89

Standard chartered bank

1,041.00

1,575.00

1,481.50

48.39

1.29

BG Group

268

1,122.00

1,369.50

16.47

1.3

Xstrata

557.6

1,121.00

1,128.50

17.23

1.94

Royal Bank of Scotland Group

496

29.2

24.72

0.3594

2.06

FTSE100 value in 04/01/2000

FTSE100 value in 31/12/2009

FTSE100 value in 10/04/2012

3 month UK government bond yield

4738.8

5283.81

5731.19

0.5%

Average yearly returns for each company

Barclays PLC (BARC.L)

Date

Close

Return

1-Jan-10

18.33

-0.09875

31-Dec-10

16.52

0.015133

1-Jan-11

16.77

-0.34466

31-Dec-11

10.99

0.053685

3-Jan-12

11.58

0.123489

10-Apr-12

13.01

0.023828

23-Apr-12

13.32

 

Standard chartered bank

Date

Close

Return

1-Jan-10

1614

0.069083

31-Dec-10

1725.5

0.018261

1-Jan-11

1757.01

-0.19807

31-Dec-11

1409

0.031938

3-Jan-12

1454

0.018913

10-Apr-12

1481.5

0.0135

23-Apr-12

1501.5

 

BG Group

Date

Close

Return

1-Jan-10

1150.9

0.126075

31-Dec-10

1296

0.02662

1-Jan-11

1330.5

0.034573

31-Dec-11

1376.5

0.037777

3-Jan-12

1428.5

-0.0413

10-Apr-12

1369.5

0.013509

23-Apr-12

1388

 

Xstrata

Date

Close

Return

1-Jan-10

1162.5

0.295054

31-Dec-10

1505.5

0.002989

1-Jan-11

1510

-0.35232

31-Dec-11

978

0.055726

3-Jan-12

1032.5

0.03293

10-Apr-12

1066.5

0.058134

23-Apr-12

1128.5

 

Royal Bank of Scotland Group

Date

Close

Return

1-Jan-10

32.1

0.217134

31-Dec-10

39.07

0.041208

1-Jan-11

40.68

-0.50393

31-Dec-11

20.18

0.028741

3-Jan-12

20.76

0.190751

10-Apr-12

24.72

-0.06432

23-Apr-12

23.13

 

FTSE100

Date

Close

Return

1-Jan-10

5500.3

0.072651

31-Dec-10

5899.9

0.019322

1-Jan-11

6013.9

-0.07343

31-Dec-11

5572.3

0.022899

3-Jan-12

5699.9

-0.01832

10-Apr-12

5595.5

0.012528

23-Apr-12

5665.6

 

Company Name

Rf

Rm

Beta

Required rate of return

Barclays PLC (BARC.L)

0.36%

0.40%

2.89

0.48%

Standard chartered bank

0.36%

0.40%

1.29

0.41%

BG Group

0.36%

0.40%

1.3

0.41%

Xstrata

0.36%

0.40%

1.94

0.44%

Royal Bank of Scotland Group

0.36%

0.40%

2.06

0.44%

Analysis of Five Stock Trading On FTSE100 and Application of the Theory

Stocks realized return

Stock realized return referred to the actual gain which earned on the portfolio value over the specific estimated, period. This amount includes any earnings that generated by the assets that held in the portfolio. However, this also includes any loses made during the shift in the value of the assets. Moreover, it is likely to recognize the realized return that is a connected with each asset. The components of a stock realized return comprises of expected return, the return from the cash flow and return from the discount rate. Out of these components, expected return reveals the cost of equity of the firm. Expected return can be defined as the weighted average of the probability distributed of possible outcomes. Whereas, the return from cash defined as the price which set in the market on the bases of cash flow, not on the performances and earning of the corporate. Lastly, the return from discount ate stress on the rate that earned on the investment.

Systematic and unsystematic risk

There are two types of risks, systematic risk and unsystematic risk, which faced by the organizations. Hence, the profitability of a security affected by two types of risk:

Systematic Risk

Systematic risk is that risk which cannot be diversified. This risk arises due to the risk factors that influence the whole market, for instance, change in foreign investment policy, changes in the socio economics parameters change in investment policy, international incidents, change in taxation, threats of global security, inflation, fluctuation in interest rate policy, political events etc. This risk also known as market risk and can only be mitigate by the method of hedging.

Unsystematic Risk

Unsystematic rick is that risk which can be ...