Risk Analysis. A Risk Analysis Was Prepared As Part Of

1084 WordsMar 5, 20175 Pages
Risk Analysis A risk analysis was prepared as part of the review of Ford as a potential investment opportunity. The Capital Asset Pricing Model defines “the relevant risk of an individual stock as the amount of risk that the stock contributes to the market portfolio” (Brigham & Ehrhardt, 2014, p. 250). The risk of a stock can be measured by its beta. The higher the beta of a stock, the higher the risk. Stocks with a beta below one are less volatile than the market while stocks with a beta of greater than one are more volatile than the market. Well-diversified portfolios include a stocks with both high and low betas (Brigham & Ehrhardt, 2014, p. 250). According to Yahoo Finance, Ford’s beta as of December 3, 2016 is 1.22 (Yahoo Finance -…show more content…
Rather, a subscription type model may be the future. Customer would sign up for a subscription service offered by companies like Uber or Lyft rather than owning or leasing their own vehicle. This has the potential to dramatically decrease the total number of vehicles needed in the United States and across the world. The business model for the automobile industry is much more profitable at high sales volumes. If those volumes decrease dramatically, as they did with the economic disruption in 2007, there is the potential that some automobile manufactures will not survive (Ferraras, 2014). Recommendation A thorough analysis of Ford, including economic, financial, and risk factors has been completed by the financial investment team. This analysis was then reviewed to determine if Ford would be an ideal addition to the client’s investment portfolio. As stated earlier, the team is looking to add a large domestic value stock with a low risk. After considering all available data and key factors, the team does not recommend an investment in Ford at this time. Ford has a strong brand and appears to be a well-run business. The company has a stellar reputation and compares favorably to its competitors when analyzing the key financial ratios. Ford has been in business for over 100 years, surviving multiple world wars and severe economic downturns. If the team was picking the best automobile company to invest in, Ford would be near the
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