RISK MANAGEMENT AND INVESTMENT

Risk Management and Investment



Risk Management and Investment Coursework Portfolio 2011

Coursework Portfolio C

Executive Summary

Diversification in portfolio helps in diversifying the risk of loss on investment decision. It also helps in categorizing the investment decision based on industry characteristics, future outlook, firms' financial performance, and objective of the portfolio investment decision. Ten companies have been evaluated from financial services, oil and gas, mining and exploration, and broadcasting and online operations. Main objective of the investment decision is to maximize long term capital returns whilst minimizing risk of capital loss.

Introduction

Europe's banking system is the largest in the world and holds consolidated assets three times those of the US system, and almost four times those of the Japanese. The outlook for the European banking sector looks bleaks for 2010 as the escalating European sovereign debt crisis places a cloud over the delicate recovery. Portfolio investment decision for this research examines ten companies from diverse industries in order to assess the impact of investment criteria on long term return maximization objectives.

Past Performance Analysis

Maximisation of long term capital returns whilst minimising risk of capital loss is the main objective of the portfolio investment. Firms that have been included in the portfolio fall in more than one industry segment that helps in diversifying the risks. These industries include banking and financial services, oil and gas, mineral exploration, industrial manufacturing, solutions services to finance and healthcare divisions, and broadcasting and online operations. This section analyzes the financial performance of the firm with respect to industry changes, market indices performance, and competitors' performance.

First company included in the analysis is Barclays Plc. Barclays Plc earned revenues of £31,440 million ($48,600 million) in the financial year 2010. Firm achieved a growth rate of 8% compare to 2009 financials (Reuters, 2011c). In the defined financial year, main business of the company generated from UK and Ireland region, which accounted for 40.7% of the total revenues (Data Monitor, 2011). Impact was clearly evident in the stock prices of the firm, as share price touched the level of 383.15 pounds in mid of 2010. However, increased lending by the company and increasing write-offs resulted in decline in share prices of the firm (Reuters, 2011c). Earning momentum of the company declined dramatically in the Year 2010, creating a direct decrease of approximate 8% in the ROE (Data Monitor, 2011). Main reason for the decrease in the ROE is devoted to firms increased lending. Long-term loans of the bank increased by approximate 1800 million pounds in order to acquire the Lehman Brothers Co. at the end of year 2008 (Reuters, 2011c). Along with it, company profitability declined by approximate 2000million pound in year 2009. In order to fulfil short-term needs, company increased its short-term loans by 2953million pound in year 2010 (Reuters, 2011c). Therefore, increasing debt funding of the company resulted in reducing the ROE of the company to 8%. However, firm has showed a positive orientation to future growth; company's annual dividend rate stood at ...