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Select two companies in the same industry/sector from the list of companies available from the Australian Securities Exchange (ASX) and collect information on the share price, treasury bond yields,...

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Select two companies in the same industry/sector from the list of companies available from the Australian Securities Exchange (ASX) and collect information on the share price, treasury bond yields, capital structure and dividends for the three most recent financial years of the companies. Your sources of information are: yahoo finance (https://au.finance.yahoo.com/), the Reserve Bank of Australia (RBA)’s website (www.rba.gov.au) and the company’s annual reports on the company’s websites.

Daily share price and daily market index data should be collected over the three year period. Ensure you select an appropriate market index to compare with the share price data. Regarding treasury bond yields, collect information on 10 year commonwealth bonds. With respect to capital structure and dividends, extract from the financial statements information on the various sources of capital, the amounts and the terms if present and dividend payments over the three year period.

You are expected to prepare and submit individually a 2000 Word report which addresses the following:

  1. (a) Calculate daily stock price returns and market index returns over the three year period. (5 marks)

  2. (b) Determine the total risk, systematic risk and unsystematic risk of the companies’ stocks over the each of the years. (10 marks)

  3. (c) Calculate the weighted average cost of capital (WACC) for each of the years for the two companies. Provide an explanation why there is a difference in the costs of capital. (20 marks)

  4. (d) Compare and contrast the dividend policy of the two companies over the three year period by calculating dividend payout ratios, identifying the dividend policy if any followed by each of the companies and checking how the share price of the companies have reacted to dividend announcements during the period. Drawing from dividend theory, suggest dividend theory/theories that could explain the patterns you have identified. (15 marks)

  5. (e) With $10 million that you inherited from your late aunt, which company’s shares would you purchase? Use relevant information from the calculations above to support your decision. (10 marks)

In addition to the above you will also be assessed on the following: (see marking Rubric at the end for more description of expectation).

  1. (f) Content, Audience and Purpose (5%)

  2. (g) Critical reasoning, presentation and defence of an argument and/or position (10%)

  3. (h) Analysis and Application with synthesis of new knowledge (15%)

  4. (i) Use of academic conventions and sources of evidence (5%)

Page 2 of 8

(j) Effective communication (5%)

Submission Instructions:

This assignment must adhere to the following:
1. This assignment must be prepared and submitted individually.

2. You must prepare a Business Report in a Word Document with Excel workings embedded into the Word document. The instructions to embed the Excel workings are as follows:

INSTRUCTIONS TO EMBED AN EXCEL FILE INTO A WORD DOCUMENT

  1. Open your Assignment in Word and Click the “Insert” tab.

  2. Click the “Object” button on the Text section of the ribbon. Click “Object” from the small

    drop-down menu.

C. When the Object window opens, click the “Create from File” tab. Browse to the Excel file containing your analysis in the directory where it is located and double-click it to embed it into the Word document. Ensure that you have ticked the box that allows you to embed the Excel file as an icon.

3. The Word document must be properly referenced using the APA referencing style. Wikipedia and Investopedia not acceptable academic sources. Note that the Reference list, appendices and calculations are not included in word count.

Answered Same Day Aug 09, 2020

Solution

Aarti J answered on Aug 13 2020
146 Votes
Stock Analysis – Wesfarmers and Woolworths
Course Name
Course Date
Student’s Name
Introduction
In this project we are analysing the return of the stocks and the performance of companies in the market. The two major stocks which has been taken for the analysis in this project includes Wesfarmers and Woolworths. Both these companies operate as the grocery stores or in the retail market and holds a major share in the Australian retail market.
Analysis of the stock prices and Return
Market return and analysis of Wesfarmers
    Wesfarmers
    Month
    Stock Price
    Return
    30-06-2015
    42.45
    
    31-07-2015
    40.66
    4.22%
    31-08-2015
    39.22
    3.54%
    30-09-2015
    39.41
    -0.48%
    31-10-2015
    38.09
    3.35%
    30-11-2015
    41.61
    -9.24%
    31-12-2015
    42.17
    -1.35%
    31-01-2016
    39.09
    7.30%
    29-02-2016
    41.45
    -6.04%
    31-03-2016
    42.77
    -3.18%
    30-04-2016
    40.63
    5.00%
    31-05-2016
    40.10
    1.30%
    30-06-2016
    42.93
    -7.06%
    31-07-2016
    42.44
    1.14%
    31-08-2016
    44.10
    -3.91%
    30-09-2016
    41.01
    7.01%
    31-10-2016
    41.78
    -1.88%
    30-11-2016
    42.14
    -0.86%
    31-12-2016
    40.26
    4.46%
    31-01-2017
    42.72
    -6.11%
    28-02-2017
    45.07
    -5.50%
    31-03-2017
    43.00
    4.59%
    30-04-2017
    42.70
    0.70%
    31-05-2017
    40.12
    6.04%
    30-06-2017
    40.73
    -1.52%
    31-07-2017
    42.62
    -4.64%
    31-08-2017
    41.33
    3.03%
    30-09-2017
    41.80
    -1.14%
    31-10-2017
    43.92
    -5.07%
    30-11-2017
    44.42
    -1.14%
    31-12-2017
    43.81
    1.37%
    31-01-2018
    41.33
    5.66%
    28-02-2018
    41.56
    -0.56%
    31-03-2018
    43.77
    -5.32%
    30-04-2018
    45.56
    -4.09%
    31-05-2018
    49.36
    -8.34%
    30-06-2018
    49.46
    -0.20%
    31-07-2018
    50.38
    -1.86%
    
    
    
    Average holding period
    -0.56%
    Annual Return
    
    
    year 1
    
    18.21%
    year 2
    
    0.42%
    year 3
    
    4.38%
    
    
    
    Standard deviation
    4.48%
From the above analysis and return we can see that in 2015, the prices of the stock was 42.45 while the ending price at the end of the third year is 50.38. Thus, we can see that the prices of the stock have not increased much over the year. The overall return of stock is 7.67% over the last three years, while the standard deviation of the stock is 4.48%. The risk of the stock is medium. The overall performance of the stock over the past three years is average.
Stock market and price of Woolworths
    Woolsworth
    Month
    Stock Price
    Return
    30-06-2015
    28.6
    
    31-07-2015
    26.4
    7.69%
    31-08-2015
    24.84
    5.91%
    30-09-2015
    24.11
    2.94%
    31-10-2015
    23.67
    1.82%
    30-11-2015
    24.5
    -3.51%
    31-12-2015
    24.28
    0.90%
    31-01-2016
    22.9
    5.68%
    29-02-2016
    22.1
    3.49%
    31-03-2016
    22.11
    -0.05%
    30-04-2016
    22.12
    -0.05%
    31-05-2016
    20.89
    5.56%
    30-06-2016
    23.41
    -12.06%
    31-07-2016
    23.71
    -1.28%
    31-08-2016
    23.27
    1.86%
    30-09-2016
    23.65
    -1.63%
    31-10-2016
    22.89
    3.21%
    30-11-2016
    24.1
    -5.29%
    31-12-2016
    24.6
    -2.07%
    31-01-2017
    25.76
    -4.72%
    28-02-2017
    26.5
    -2.87%
    31-03-2017
    26.88
    -1.43%
    30-04-2017
    26.05
    3.09%
    31-05-2017
    25.54
    1.96%
    30-06-2017
    26.7
    -4.54%
    31-07-2017
    26
    2.62%
    31-08-2017
    25.21
    3.04%
    30-09-2017
    25.88
    -2.66%
    31-10-2017
    26.91
    -3.98%
    30-11-2017
    27.3
    -1.45%
    31-12-2017
    26.95
    1.28%
    31-01-2018
    27.61
    -2.45%
    28-02-2018
    26.29
    4.78%
    31-03-2018
    27.86
    -5.97%
    30-04-2018
    28.46
    -2.15%
    31-05-2018
    30.52
    -7.24%
    30-06-2018
    30.09
    1.41%
    31-07-2018
    29.64
    1.50%
    
    
    
    Average holding period
    -0.18%
    Annual Return
    
    
    year 1
    
    14.00%
    year 2
    
    9.66%
    year 3
    
    -10.19%
    
    
    
    Standard deviation
    4.16%
From the above analysis and return we can see that in 2015, the prices of the stock was 28.60 while the ending price at the end of the third year is 29.64. Thus, we can see that the prices of the stock have not increased much over the year. The overall return of stock is 4.49% over the last three years, while the standard deviation of the stock is 4.16%. The risk of the stock is medium. The overall performance of the stock over the past three...
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