Financial Analysis (Case Study Sample)
THIS PAPER WAS AIMED AT PREPARING A REPORT ON PREVIOUS FINANCIAL ANALYSIS DONE ON CAPITAL STRUCTURE COLGATE PALMOLIVE AND CALCULATION OF THE MEASURES OF THE RISK OF ASSETS USING CAPITAL ASSET PRCING MODEL -CAPM .THE BETA ,STANDARD DEVIATION AND VARIANCE ARE TO BE CALCULATED AND COMPARE FOR VARIOUS ASSETS AND SECTORAL SECURITIES .source..
1 The data presented in answering part 2 of Professional Assignment 2.
The data provided in part 2 of professional assignment entail:
The income statement of Colgate Palmolive leveraged firm found in Yahoo Finance under: https://finance.yahoo.com/quote/CL/financials?p=CL
The balance sheet of Colgate Palmolive leveraged firm founder in Yahoo Finance under : https://finance.yahoo.com/quote/CL/balance-sheet?p=CL
A Corporate structure of Colgate Palmolive in Yahoo Finance under : https://finance.yahoo.com/quote/CL/profile?p=CL
A 5 year monthly beta of 0.59 for Colgate Palmolive in Yahoo Finance under https://finance.yahoo.com/quote/CL/key-statistics?p=CL
The annual return is calculated using balance sheet items and found to be 2.39% while risk free rate of US treasury stock is 3.8% making it better to invest in US treasuries than investing in CL corporate securities .
The calculated beta in the previous assignment is 0.8 making beta less volatile than market because its is less than 1 .
Wacc of the corporate is calculated and found to be 6.173%
5 major securities in major industries is as well provided the annually returns over time .This is Yahoo Finance Under :https://finance.yahoo.com/news/stock-market-sectors-101-11-190248936.html:
2 The mean, variance, and the standard deviation of each security’s annual rate of return.
The mean ,variance and standard deviation of each security’s annual rate of return will be calculated based on historical data .The returns will be found for Five major securities in the following sectors
* Consumer discretionary
* Information technology
* Communication services
* Real estate
* Health care
* Consumer staples
The mean, variance, and the standard deviation of each security’s annual rate of return.
has been calculated on the excel attached as follows :
I. Mean for US large CAPS =8% ,variance =63% ,standard deviation =7.93%
II. Mean for US small CAPs =10% ,variance 76% ,standard deviation 8.72%
III. Mean for International Stocks =6% ,variance 85% and standard deviation =9.22%
IV. Mean for emerging market stocks =12% ,variance =185% and standard deviation =13.60%
V.Mean for REITS =12% ,variance =69% and standard deviation =8.31%
VI. Mean for High Grade Bonds =5% ,variance 2% and standard deviation =1.41%
VII. Mean for High –Yield Bonds =8% ,variance=50% and standard deviation 7.07%
The annual returns are found under https://novelinvestor.com/historical-returns/
3 The correlation coefficient between every possible pair of securities’ annual rates of return.
Correlation coefficient shows the extent to which security returns are linearly relate
This is give by Cov (R1,R2)/ σ1●σ2)
(8% *10% )/(7.93%*8.72%)=1.16 approximately 1 showing strong linear correlation between the securities .
This is correlation coefficient for US Large CAPs and US small CAPs .
4 Choose percentages of your initial investment that you want to allocate amongst the five (5) securities (weights in the portfolio).
The weights of security portfolio at a given point in time is given by security market value divided by value of portfolio .
1 Embedded formulae which generate statistical properties of the portfolio upon insertion of the weights.
The weights of the portfolio will be given by security market value /value of portfolio .
The value of portfolio can be assumed to $1000,000Million .
* US large caps 35%
* US small caps 30%
* International stocks 10%
* Emerging market stocks 10%
* REITS 15%
2 Observe the mean, the standard deviation, and the CV of the annual rate of return of the portfolio.
The mean ,the standard deviation and CV are calculate on excel .CV=standard deviation of portfolio/mean .
* US large caps standard deviation =15.34%,mean =4.76% ,CV=15.34%/4.76%=3.22
* US small caps standard deviation =18.75% ,mean=9.44%,CV=18.75%/9.44% =1.99
* International stocks standard deviation =16.94%,mean =4.5% ,CV=16.94%/4.5
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