Beauty Ltd And Ugly Ltd Overall Performance

We use Capital Asset Pricing Model (CAPM) approach to calculate the cost of equity. The formula of CAPM is re = rf + β × (E[RMkt] – rf).

Our estimated cost of capital, 20.81%, is lower than Ricketts’ expected return, 30%-50%, thus the investment is worthy. However, it’s higher than other pessimistic members’ expected return, 10%-15%, making the decision more complex and requiring further valuation。

To analyze firm performance we are going to focus in no four key areas: financial, position, profitability, market performance, and organizational health. To identify position for a public company we are going to use the total debt/equity metric. The company has a debt/equity of 40.4 which is more than First American Financial at 21.72. From a profitability standpoint we will focus on the net profit margin ROE, and relative return on assets. Fidelity’s net profit margin at twelve months is trailing at 8.73% trending above First American Financial, one of its direct competitors at 5.66%, which puts them in the top 3 companies in its industry. (“Yahoo” 2015). When looking at the return on assets they are slightly ahead of First American Financial with a 4.92% versus their 3.84%. As we take a look at ROE we see that Fidelity did just a bit better than FAF with 11.48%. We can conclude that Fidelity fared well on profitability. Comparing First American Financial to Fidelity in regards to market performance fidelity is trending up with a 1.26% change, while FAF is on a downtrend of 1.68%. Lastly, we look at organizational health. Employees have ranked Fidelity at 3.7 out of 5 stars, which put them at a good grade in this category (“Glassdoor” 2015).

Given these approximations, the CAPM model would total the risk-free rate and the market risk premium times beta to arrive at a cost of equity of 9.68%, which reflects the investors’ expected return from investing in shares of the company.

This is the assessment of the historical and future performances of the two companies in order to fully project internal and external factors that will affect the forecasts. The purpose is to identify trends, year to year changes, in order to assess whether the two companies’ performance are stable or sporadic and highly volatile.

Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.

Cost of Equity of Kohler has been calculated based of Capital Asset Pricing Model (CAPM) which is depicted as follows:

We added the market risk premium of 6% to the 4.60% because 6% is the rate that investors want above the risk free rate due to the risk of the investment. This equals 10.6% which is then multiplied by the beta of the company of 1.1. Beta is a measure of the stock’s volatility in relation to the market. A beta of 1.1 means that Worldwide Paper Company has slightly higher volatility than the market does. The total cost of equity then calculates to equal 11.2%. This tells us that given the risk taken in investing in the company, a shareholder should expect an 11.2% return.

The company’s objective is to improve its competitive position in deep-discount brokerage. In order to achieve this objective, the company must grow its customer base, requiring an investment of $100 million to upgrade its technological capabilities as well as an increase of $155 million for its advertisement budget. In order to evaluate the company’s cost of capital, we used the Cost Asset Pricing Model. Since the company went public recently, it would not be an accurate assessment of the risk of

For estimation of betas, the above equation was run for the period from Jan, 2003 to Dec, 2006. Based on the estimated betas we have divided the sample of 63 stocks into 10 portfolios each comprising of 6 stocks except portfolio no.1, 5 and 10 having seven stocks each. The first portfolio 1 has the 7 lowest beta stocks and the last portfolio 10 has the 7 highest beta stocks. The rationale for forming portfolios is to reduce measurement error in the betas.

Using the same market risk premium and risk free rate (5.5% & 4.62% respectively) given in the case, the averaged beta of 1.40, the pretax cost of debt of 7.65%, and the weighted average of debt & equity, the products & systems

Company D has higher current ratio and quick ratio which is higher 2.43x and 2.3x respectively. This was because Company D had higher cash and short term investment which was 55.6% while Company C only has 1.4%. It proves that Company D is financially conservative and it matches with the second described company.

We use the Capital Asset Pricing Model (CAPM) to determine the cost of equity. As

With the objective to understand the business performance of the two entities, we reviewed the 2007 financial statements of both company and tried to obtain some insight on the profitability and solvency of each entity.

Based on the financial ratios given, this section will compare and contrast the financial strengths of Company X and Company Y in order to suggest Tringale Ltd to take decision regarding which of the above companies to chose for investment. This section provides comments on financial performance areas based on the data given, and presents report to the Board of Directors of Tringale Ltd by recommending which of the two investment opportunities is better.