FIN205_Assessment 2_

docx

School

Charles Darwin University *

*We aren’t endorsed by this school

Course

205

Subject

Finance

Date

Jun 18, 2024

Type

docx

Pages

Uploaded by ElderKoalaPerson1136

FIN 205/510 Assignment Marks: 30 (15% weight of total assessment) Problem 1: Choose a publicly traded company from the Australian Securities Exchange (ASX). Write about the company, its product, and services, the size of the board of directors, the name of the CEO, year of establishment of the business, and provide the following information about your chosen company. 02 Marks Company Name: Orica Limited Stock Ticker Symbol: ORI Stock Information: Orica have 11 directors/senior management: Chairmen, Managing Director/CEO, 7 Non- Executive Directors, CFO and Investor Relations. The CEO Sanjeev Gandhi is also the managing director. The business was first listed on 28 th November 1961. The company was initially found in 1874. Most recent price $16.110 Market capitalization $7.20B Daily volume 856,381 Number of ordinary securities published on ASX 455,491,558 Most recent dividend $0.180 Annual dividend yield 2.53% P/E ratio 26.01 EPS $0.607 Company Description: Orica is the largest provider of commercial explosives and blasting systems to the mining and infrastructure markets, the global leader in the provision of ground support in mining and tunnelling, and the leading supplier of sodium cyanide for gold extraction. How to answer this question? Choose a company from the link below. https://www.asx.com.au/asx/research/listedCompanies.do Click on the Key statistics and note them down as required in question 1. Problem 2: Find the beta of the stock from 30 June 2018 – 31 July 2023 (download daily price

information) from yahoo finance and write a summary of your analysis indicating the stock price trend during the analysis period. 05 Marks How to answer this question? Steps in downloading stock price from https://au.finance.yahoo.com/ a. Type the name of your chosen company in yahoo finance search option b. Click on the historical data. c. Choose time for 5 years of data (for example (30 June 2018 – 31 July 2023) period. d. Show historical price, Frequency: daily e. Download the excel spreadsheet with data and save it. f. Keep date and Adj closing price columns and delete open, high, low, and volume columns. Orica has a steady trend for most of the 2019 Financial Year., starting at 17.68 and closing at 20.27. The largest increase came on the 9 th of May where the share price increase by $1.05. This was a 5.6% increase on its price. The price kept increase for the start of the 2020 FY where ORI hit its highest share in this period of $24.24. However, this trend did not continue for long as the share price dropped to $14.2 in March 2020. The Price has slowly and unevenly climbed up since that time where it now remains at $15.75 (as of the 31 st of July 2023).

g. Now you can find ASX 200 index data here https://au.investing.com/indices/aus-200-historical-data h. Download the ASX 200 index data and only choose Adj closing price. Copy Adj closing price and past it next to your chosen company’s stock price. Follow the above two videos to collect data for your chosen company and ASX 200 index. https://www.youtube.com/watch?v=Byx4hQ0IRrM&t=276s i. Now arrange the data in 3 columns in you excel file. Column 1 (date), column 2 (your chosen company’s adjusted closing price, ASX200 adjusted closing price. Now select the data in 3 columns and click data icon in you excel sheet and then click Z to A arrow sign to arrange data from 2023 to 2018 period. j. Now compute returns (returnt = (Pt – Pt-1)/Pt-1 ) of the chosen stock and ASX 200 index for the stated (daily data) period. Variables Your chosen company (30 June 2018 – 31 July 2023) ASX 200 (30 June 2018 – 31 July 2023) Return (most recent period) 0.508% -28 th July Return -0.092% -28 th July Return Mean (average returns) 0.0154% -0.0080% Variance 0.000306 0.000124 Standard Deviation 0.017501 0.011126 *Slope (Beta) 0.960836 *Slope = covariance (returns of X company, returns of ASX 200)/ variance of ASX returns. You can either type (=slope (return of X, Returns of ASX 200) in excel or the above slope formula. J. Now calculate beta by regressing the share's returns on the returns to the index chosen. Report both excel results and regression result with beta. Your calculated slope and beta will be exactly the same. Copy the regression table from the excel sheet and paste it on your assignment word file. For regression analysis, you have to use the analysis tool pack available in excel.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

SUMMARY OUTPUT Regression Statistics Multiple R 0.610871 R Square 0.373163 Adjusted R Square 0.372675 Standard Error 0.013867 Observatio ns 1286 ANOVA df SS MS F Significan ce F Regression 1 0.14697 9 0.1469 79 764.37 98 2.2E-132 Residual 1284 0.24689 5 0.0001 92 Total 1285 0.39387 4 Coefficie nts Standar d Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 0.000231 0.00038 7 0.5978 45 0.5500 49 -0.00053 0.0009 9 - 0.0005 3 0.0009 9 X Variable 1 0.960836 0.03475 3 27.647 42 2.2E- 132 0.892656 1.0290 15 0.8926 56 1.0290 15

Problem 3: Now use the information from Problem 2 to check the return of the stock in pre-covid (30 June 2018 – 28 February 2020), during covid (1 March 2020 -31 December 2021), and post covid (1 January 2022 – 31 July 2023). a. Explain if the stock returns are different in three periods. The stock prices are different between these three period for Orica. During the pre-covid period, the adjusted closing price went from 15.82 to 18.47, with a maximum of 22.32 and lowest of 14.59. The next period is the covid period, were the stock price dropped from 18.31 to 13.23. This is a decline of $5.08 with a maximum price of 19.23 and lowest of 11.18. The final and most recent period saw the stock price steadily increase going from 13.46 to 15.75. The highest adjusted closing price was 16.76 and lowest of 12.50. Another viewpoint is looking at the beta’s for each of the periods. The pre-covid period had a beta of 0.998075. This says that the Orica stock basically just under the trend of ASX 200, so where ASX had a return of 1% then so would Orica. Alternatively, the during covid period, is where Orica had a greater return than ASX200. So where the ASX would have a stock price return of 1%, Orica’s price would increase by 1.03352%. Lastly the post-covid era, Orica’s return in relation to ASX 200 was at its worst out of the three periods. Orica’s beta was 0.71607; in other words, Orica had only 0.716% return to ASX’s 1%. b. What you can see or understand from the stock return pre-covid, during covid and post covid period? 05 Marks AS we can see with the above statical data, Covid had a massive effect on Orica’s stock price. To understand the implications that Covid would have on Orica, we need to know what the company trades in. Orica is a global materials (mining) company. Orica labour force relies heavily on FIFO all around the globe, as well as close contact with its labour force. However, due to the nature of COVID 19, air travel grinded to a halt and social distancing became a main priority around the world. This resulted in Orica’s stock price dropping almost $6 from 19.20 to 13.92 within the initial month of COVID (March 2020). For countries and government to survive in a covid world, new government mandates were introduced. These mandates/laws varied between each country, but the most concerning part of this for Orica, was the introduction of social distancing, travel restrictions and FIFO accommodation laws (i.e. restricted access to remote communities that don’t have an antibodies/exposure to COVID like viruses). This caused Orica’s operational expenditure for mining sites to increase substantially. This can explain why Orica share price in the post covid period is under ASX 200. How to answer this question? Repeat the procedure of problem 2 for three periods and then explain the results. You may compare the beta calculated in problem 2 with the beta of pre-covid, during -COVID and post covid period. You may also include the company specific factors (sales, export, production, supply chain etc) that has been impacted by COVID 19 and their related impact on stock price performance. Try to enrich your answer with related factors you think has had an impact on stock.

Problem 4: a. Collect the 5 years dividends information of the company from the yahoo finance website. Calculate the dividends growth rate and the return on share investment. 05 Marks Dividends Growth Rates {(D 1 - D 0 )/D 0 } The annual rate of return using the Gordon Model (P 0 = D 1 /r-g) 2023 (D 6 ) 38.462% 2022 (D 5 ) 73.333% 39.603% 2021 (D 4 ) -54.545% 74.336% 2020 (D 3 ) -25.000% -54.094% 2019 (D 2 ) 10.000% -24.123% 2018 (D 1 ) -14.894% 11.391% For stock price information (P 0 ) check yahoo finance. You can do this section along with question number 2 Problem 5: Now visualize the analyses you did in solving problem 2, 3 and 4 in graphs and charts by using Microsoft power BI software. 5 Marks How to solve: To solve the problems, follow the solution video uploaded in Learnline

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Problem 6: Now prepare the presentation of your assignment with a PowerPoint file with audio (maximum 5 minutes). 02 Marks Explain the result of problems 2 and 5 on PowerPoint slides (2 to 3 slides) and record your audio on powerpoint. Now upload the recorded PowerPoint file to student media upload on Learnline. Check the link for adding audio on your PowerPoint slides https://support.microsoft.com/en-us/office/video-add-and-record-audio-eeac1757-5f20- 4379- 95f2-0d0cd151d5b8 You are required to submit assignment files (word file, excel file, Power BI file, and PowerPoint with audit) by the submission deadline of 13 September, Wednesday, 11 pm (Darwin time). Problem 7: Download the research paper from google scholar. Bose, S., Shams, S., Ali, M.J. and Mihret, D., 2022. COVID 19 ‐ impact, sustainability performance, and firm value: international evidence. Accounting & Finance , 62 (1), pp.597-643. Read the research paper and explain the factors contributing in firm value during the COVID-19 outbreak in your chosen company (1000 words). 6 Marks The above research paper by Bose, Shams, Ali and Mihret discusses multiple factors that affect firm value during the COVID-19 outbreak. In order to fully understand the contributing factors in firm value, we must explain the variables within the paper. One of the more important variables within this paper is ‘ΔTOBINQ’, which is the change in firm value. ‘ΔTOBINQ’ looks at “the difference between the daily average value of Tobin’s Q from 1 January 2020 to 31 July 2020 and the daily average value of Tobin’s Q at December 2019 divided by the daily average value of Tobin’s Q at December 2019” (Bose, Shams, Ali, & Mihret, 2022) . Furthermore, Tobin’s Q is the “sum of the book value of total assets plus the market value of equity minus the book value of equity divided by total assets” (Bose, Shams, Ali, & Mihret, 2022) . The first factor that will be looked at is COVID-19’s impact on a firm’s operational country. The paper reported that “firms operating in countries with a higher level of COVID-19 infections (deaths) have a lower firm value (ΔTOBINQ) compared to firms operating in countries with a lower level of COVID-19 infections (deaths)” (Bose, Shams, Ali, & Mihret, 2022) . The research paper looked at a total of 47 countries in their sample data. This is important to note when looking at the factors contributing to Orica’s decrease in firm value during the COVID-19 outbreak. The finding of the paper state that Chile, Panama and the United States have the highest level of COVID-19 infections. Unsurprisingly, Orica operates out of Chile and the United States (Orica Limited, 2023) . You may ask, how does higher COVID-19 infections decrease Orica’s firm value? The answer is relatively simple; at the peak of COVID-19 (March-July 2020), employees who were either infected with COVID-19 or had been around someone that was infected had to do home quarantine until they were no longer contagious. Due to the fact that Orica is a mining company that relies heavily on FIFO workers, workers that are unable to travel and must be in quarantine are obviously unable to work. Therefore, Orica experienced a reduction in work force on top of accommodating for any new complications within the workplace (e.g. a worker testing positive for COVID-19 and having to quarantine). Additionally, Orica had to deal with another issue outside of the reduced labour force in countries

of high levels of COVID-19 infections. Countries with high levels of COVID-19 infections also implemented greater restrictions to combat the spread. Not all countries had the same range of social and environmental restrictions, each country had its own philosophy to decrease the spread of the virus. Lets look at Orica’s operation in Chile. During the peak of COVID-19, the Chilean government imposed a mandatory 10-day quarantine for all international and domestic travelers arriving in Chile. The initial complication with this 10-day quarantine is the accommodation cost per FIFO worker that Orica must bear. There only other alternative is to look source their workforce from the source – the Chileans. However, this was extremely difficult as Chile’s population was decrease due to COVID-19 deaths, where Bose’s research paper states that out of the 100 people infected with COVID-19, 14 of them would result in deaths. AS you can see, Orica had a massive difficulty sourcing workers for their sites in countries with high levels of COVID-19 infections, either internally within the country or externally. The research paper further backs this point with its regression analysis. It goes on to state that a “one standard deviation increase in COVID-19 infections and deaths per million population leads to a 10.11 percent and 10.85 percent reduction, respectively, in changes in firm value” (Bose, Shams, Ali, & Mihret, 2022) . Additionally, the research paper discusses the role of sustainability performance in relation to the impact of COVID-19. The paper’s findings suggest that a reduction in firm value within a country with high covid-19 impact is normally when the firm has a low sustainability performance. How does this impact Orica? Due to Orica’s global presence and it large company size, they have implement a variety of procedures and processes to help increase their social, economic and environmental sustainability. Furthermore, since Orica is mainly mining and materials company, they focus on more environmental and economic sustainability, and due to the widespread social implications of covid, this factor may be an attributing reason to the decline in firm value (share price). References Bose, S., Shams, S., Ali, M., & Mihret, D. (2022). COVID-19 impact, sustainability performance and firm value: international evidence. Accounting & Finance, 62 (1) , 597-643. Orica Limited. (2023). Orica Limited . Retrieved from About Us: https://www.orica.com/About-Us