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You are encouraged to choose two international companies. It is necessary that you choose
companies which are listed on a major Stock Exchange such as London Stock Exchange (LSE)
www.londonstockexchange.com and have at least five years of trading history and five set
of annual financial statements.
Then you to report your findings and their implications for financial
decision-making from three main perspectives: investors, creditors, and management. To do
so, you need to do the following:
Download companies´ financial statements for 5 consecutive years from their websites
Download stocks prices monthly data for 5 consecutive years from www.Investing.com
or www.finance.yahoo.com or www.reuters.com
Download the same period data for a market portfolio proxy like S&P 500, Dow Jones, or NASDAQ.
Within the case report should include/discuss the following:
A brief outline of both companies and the sector in which they operate.
Calculate/Estimate/Construct/Assess/Answer, and Critically Interpret:
BUSINESS PERFORMANCE
o Analyse and interpret the most common industry-specific ratios used by
investors and creditors to measure a company′s level of risk, profitability,
liquidity, and market value.
❖ FINANCIANG DECISIONS:
➢ Section I:
o Log returns/simple monthly returns of the stocks and the market portfolio
o The arithmetic average returns (expected returns) of the individual stocks and
the market portfolio
o The risk (std. deviations) of the individua stocks and the market portfolio
o The correlation between the two stocks and between stocks and the market
o VaR
o Systematic risk (BETA), Jensen′s Alpha, and the unsystematic risks using
regression analysis for both stock and the market portfolio. What does it tell
you about the performance of company′s stock during the period of the
regression? What does r-squared tell you?
o Required rate of return (i.e. the minimum level of expected return that an
investor requires over a specified period of time, given the asset′s riskiness)
using the CAPM module.
o Do companies have high free cash flows (FCF) over the last five years? How
high are the current cash flows of the firm (to service the debt) and how
stable are these cash flows? (Look at the variability in the operating income
over time).
o Calculate and interpret the overall cost of the company’s financing (WACC) for
both companies (cost of equity and cost of debt)
o The Security Market Line (SML) or the Capital allocation line (CAL) to
determine if the stock prices are under or overvalued (or using financial
ratios)
o Markowitz′s Efficient Frontier
o The Global Minimum Variance Portfolio
o The Optimized Stock Portfolio
o The Capital Allocation Line (between Efficient Frontier and Risk-Free Asset)
o Evaluating the performance of your investment portfolio using Sharpe Ratio,
Treynor Ratio and M2
➢ Section II:
By analysing companies’ share prices and financial statements for the 5 consecutive
years critically answer the following questions. Support your answer with evidence from the financial statements:
o What are the different types of financing that both companies have used to raise funds? How large, in qualitative or quantitative terms, are the advantages to the companies from using debt? How should they go about choosing their debt-equity ratio? From the qualitative trade off, does this firm look like it has too much or too little debt? Is that good or bad?
o Assess the optimal financing mix of both companies (for this, calculate Optimal Debt Ratio). Does capital structure really matter?
o How stock prices depend on future dividends and dividend growth?
o Investigate the relationship between company announcements and share price behaviour for the period of study.
❖ BUSINESS DECISIONS:
o Why should firms manage the risk the face? And how they should implement a comprehensive risk management system? Give examples while discussing the
risk severity matrix.
o What are the major issues that a company risk policy must address? Indicate what a company could do to resolve these issues?
o As a risk manager, ´´think outside the box´´ about how can both companies manage unknown and unknowable risks? Give examples?
❖ SUSTAINABLE FINANCE
´´Does sustainability matter to equities? ´´ For this question you will need to provide robust evidence to justify your answer, show how you have arrived at your conclusions and prove that it’s based on solid grounds
LENGTH: 3,000 words +/- 10% not including Title Page, Contents Page, Executive Summary, References or Appendices
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