HAW Hamburg Faculty of Business and Social Science Department of Business Term paper Markowitz portfolio allocation theory First name, family name Date and place of birth Matriculation number Maria Titova 10.08.1992, Moscow 2227909 Telephone, e-mail Date of submission: +49 152 0218 1097 5rd December 2014 maria.titova@haw-hamburg.de Lecturer: Prof. Dr. Decker Course: Corporate Finance Name of degree program: International Business (M.Sc.) - II - I Abstract The idea of diversification is rather old. The axiom “don’t put all your eggs in one basket” definitely precedes economic theory. However, the theory, pointed to the power of diversification was first developed by Markowitz in 1952 and now is known as Markowitz portfolio allocation theory. …show more content…
Error! Bookmark not defined. V List of abbreviations CAPM Capital Asset Pricing Model - 1 - 1 Introduction 1.1 Research problem Harry Markowitz is one of the founders of the theory of finance, the fastest growing economic sciences. This lays the foundation for the applied financial management in a company, using the tools and methods of investigation with a help of which any company can analyze its financial position, to assess the value of its capital and its structure, to select the best investment project and to manage it or to decide how and how many shares or bonds to issue. Markowitz's approach to the problem of portfolio selection suggests that the investor tries to solve two problems: to maximize the expected return at a given level of risk or minimize uncertainty (risk) at a given level of expected return. Therefore, the aim of this course work - review the Markowitz portfolio allocation theory as a way of creating the optimal and efficient investment portfolio and highlight its importance in modern world. This paper tries to answer two fundamental questions: first, what is the main idea behind Markowitz allocation theory, and the second, how valid is Markowitz theory
This step involves short and long term debt equity analysis. The proportion of equity capital depends on the possessing and additional funds will be raised. The choice of the source of funds the company has are the issue of shares and debentures, loans to be taken from banks and financial institutions and public deposits to be drawn in form of bonds. The choice will depend on relative merits and demerits of each source and period of financing. The management of the investment funds is key in allocating that the funds are going in the correct place. The profits that are made can be down in two ways dividend declaration which includes identifying the rate of dividends and retained profits in which the volume has to be decided which will depend upon expansion and diversification of the company. The management of cash is another important function. Cash is needed for all different aspects of the company such as payment of salaries, overhead and bills. All of these are important in a company and how successful the financial aspect is going to be.The financial management practices include capital structure decision, investment appraisal techniques, dividend policy, working capital management and financial performance assessment. A company needs to have well financial in order to be successful. “A company that sells well but has poor financial management can fail.” (Johnston)
Abstract : Analysis of financial statement of a company is an important because it is useful to obtain Information
Knowing the financial position of every business is very important. It is the process of measuring the result of company’s policies and operations in monetary terms and it is also used to measure the company’s overall financial health over a given period of time. The financial position of a company is measured by the performance it takes in the company’s financial statement such as balance sheet, cashflow and income statement.
An assessment of the company’s financial statements will highlight the firm’s management of its risk and opportunities.
In order to ascertain how well a company is performing, analyses must be done in regard to the business being stable, including its’ ability to pay debts, how much cash or other liquid assets are available, and whether the organization is viable enough to continue operations. These analyses typically look at income statements, balance sheets, and statements of cash flow, where current and past performance will be studied with the goal of predicting how the company will perform in the future.
It is important to know the proper technique and method of valuing a company because different people may have different ways of assessing the value; it is also important in understanding the bank’s method of appraising and valuing a company or business
In the case of Assessing a Company’s Future Financial Health, the case concentration is on SciTronics, a medical device company, performance measures based on the organization’s three primary financial data sources in Exhibit 1 & 2. Utilizing the 9 steps of corporate financial system, I will be able to analyze the financial health of the company to assess whether it will remain balance over the ensuing 3-5 years. The measures are grouped by focusing on “Financial Ratios” such as: 1.) profitability measures, 2) activity measures, and 3) leverage and liquidity measures. Using the financial data sources, I would be able to make recommendations regarding SciTronics 126 million loan request.
I have researched the company’s financial reports. There will be a financial analysis of the company comparing its present to past two years’ performance and to the performance of its major competitors.
As the financial analyst of the company, this report is written in respect to how the financial position of the company can be improved. This report is aimed for the senior management team.
This is the riskiest strategy because the investor must act on uncertain forecasts of future interest rates. The strategy is designed to preserve capital (lose as little as possible) when interest rates rise (and bond prices drop) and to receive as much capital appreciation as possible when interest rates drop (and bond prices rise).
Since there are significant changes in the company for the last 3 years such as descending trend in car and truck market in 1991, sale of one of their core electronics business, terminated Volvo agreement etc.; the company thinks that their financial value (equity and debt ratios and weights) and accordingly cost of capital is changed. Also company has free cash (derived from the sales of electronics
The company will determine its financial health using its financial performance and financial position. This is shown by the profitability statement for the year under review, and its financial statement. The performance and financial position are measured using the accounting ratios. The raw data from the income statements for the four years 1009, 2010 and 2011 indicate progressive improvement over time. The table below illustrates the observation.
The purpose of the report is to understand the capital structure of the chosen company on the basis of the financial statements of the company which includes the income statement, balance sheet and the cash flow statement of the company and do the capital analysis of the company as well to find out the advantages and disadvantages in working capital of the company and suggest company logical and useful ways for growing their economy.
For the analysis we have used the historical financial data of the company, the history of the company and its financing policy, and the financial data of its competitors.
Finding out the current financial status of the company in order to able to process further of a chosen segments which chosen resources Selecting the appropriate segment for the firm