Applied financial management report (please see the example report on Sainsbury and Tesco and try to follow) please use 2015/2016 annual report
Part 1 ratio analysis Next plc and Ted Baker plc (between 600-700 words)
My part is to write about profitability ratios analysis and the Price earning ratio (PE ratio)
Part 2
Beta estimation and CAPM for NEXT plc( 400-500 words)
Please see the word document example and try to follow as example.
If you have access to Bloomberg it would be appreciated if you could use it.
Criteria1
Technical considerations
- Correct accounting numbers are used in all financial ratios
- Appropriate price data are used for beta estimation and cost of equity is correctly determined
Criteria 2
Interpretation and analysis
2.1For each performance aspect: the essential ratios are discussed, the potential causes for their movements are identified and their financial implication are assessed.
2.2For beta and cost of equity estimation: proper consideration is given to return intervals, market proxies risk free rates and sample periods.
Criteria 3
Extent of research
Clear evidence of good use of information from annual reports, other scholar articles and public and reputable information.
Introduction
Companies backround
Ratio analysis Next and Ted Baker
Profitability ratios
Sequencing of ratio interpretation
– GPM
– OPM
– ROCE or ROSF
– A top down approach would avoid repetition
PLUS any other profitability ratios which might be appropriate. NPM, Asset Turnover,expences as a percentage of sales,etc .( please check example report). A list of 7 to 8 ratios for each ratio.(my part is to write about profitability ratios and P/E ratio)
– Define what it measures(perhaps explain in the appendix together with the calculation)
– Cross reference the figures you obtain to calculate the ratio(probably something like annual report 2015 page xxx)
– Identify the possible causes of the change of the ratio over time and cross reference this causes to any source of information.
– When comparing the ratios of the two companies Next plc to Ted Baker plc you should address their relative performance.
_ Remember to discuss the limitation that you specifically encounter in searching the right figures for the ratio calculations,information to explain the changes in ratios over time.
How to approach the ratio interpretation
– Identify the trend(s)
– Provide possible causes to this observed trend(s) with supporting sources
– Assess the financial implication(s)
Beta estimation Next only
- select quoted company of your choice(NEXT).Obtain it’s historical share prices for 5 years
- Using either the regression model or covariance method estimate the beta and expected return for the company. You may need to obtain a suitable risk free rate when estimating the expected return based on CAPM.
- Critically discuss the advantages and disadvantages of the data and methodology used.
In this section, you should discuss the practical and theoretical considerations for:
– using monthly, weekly or daily share returns
– the choice of market portfolio and riskfree rate
-the estimation of expected market return ( does it make sense if the historic market return is lower than the riskfree rate?) and
-the possibility of time changing beta
Hints
Obtain data( share prices and other financial and non -financial data from www.hoovers.com , www.finance.yahoo.com or datastream etc)
- The hoovers.com website has limited financial and non- financial information on major companies traded on the world markets.
- The yahoo finance site has share price history (you can download daily, weekly or monthly share prices) and market indices.
- Most FTSE100 companies own website have investors sections where you can view past annual reports, share price history..
- Use the Capital Asset Pricing Model(CAPM)
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