Share Price Trend Analysis For AMP Limited And Commonwealth Bank

Overview of Share Price Trends

                                                                    (Source: Au.finance.yahoo.com 2018)

The share price movement of AMP Limited is relevant depicted in the above figure, where the changes in values can be seen. In addition, the current share price of the organisation is mainly at the levels of 3.17 as of 19-09-2018, which depicts their declining trend. Therefore, from the evaluation it is also understood that the shar price of the company was mainly rising during the financial year of 2014, while the decline started after the augmentation of 2015 (Viney and Phillips 2015). This decline in the current operations of the organisation was the main reasons behind the deterioration of the share price. The pricing also indicate that the current share price movement of the company is mainly in down trend, as now higher highs has been achieved since 2015, while lower lows has been attained. This is an indication where the current shar price valuation of the organisation is declining due to its overall performance. However, the decline since 2017 is steeper, which has incurred due to the augmentation of the Royal Commission that was assigned to view the current unethical practices conducted in financial sectors. The new related to the current operations of AMP has mainly declined its share values, as the company has been engulfed in unethical practices, which was partially disclosed by the Royal Commission. On the contrary, Chandra (2017) argued that investor using the technical analysis is not able to comprehend the investment opportunity, which is detected from fundamental analysis.

                                                         Figure 1: Share price trend of CBA for last five years

                                                                     (Source: Au.finance.yahoo.com 2018)

The current share price value of Commonwealth Bank is mainly at the levels of 72.09, which has relevantly fallen from the highs of 96.08 achieved in 2015. However, increment in valuation of the company was mainly at the levels of 73.08 during the start of 2014, while it achieved the highs of 96.08 in 2015. This increment in share price was only witnessed once, while rapid decline in the share price can be seen during the financial year of 2015. Since 2015 the share price of Commonwealth Bank has mainly declined exponentially, where the support is seen within the levels of 70. The share price of the organisation has relevantly increased during the financial year of 2017, while the disclosures conducted by the Royal Commission directly have negative impact on valuation of the organisation. The share price valuation of the organisation has declined abruptly during the period of 2017, which indicates the low valuation that has been conducted by the organisation. In this context, Edwards, Magee and Bassetti (2018) mentioned that investors with the use of charts able to understand the current trend of a share, which can be help in improving the level of income from investment. Therefore, furthered decline in values of CBA below the price level of 70 will indicate an initiation of a new downtrend.

The Royal Commission was assigned during the fiscal year of 2017 for analysing the current unethical practices, which are being conducted by the financial sector companies. The results that is intended by the Royal Commission will directly have negative impact on the performance of financial sector companies. This relevantly raises the level of concern for the financial sector companies, as both the systematic and unsystematic risk has relevantly increased for the financial institutions (Theguardian.com 2018). The rising concern for the unethical measures, which were conducted by the financial sector companies was highlighted by the Royal Commission. This relevantly raises the level of systematic (market) and unsystematic (firm-specific) risk, present with the capital market. The rising concern for the financial sector companies will directly affect the overall capital market and raises the concern for price fluctuations. On the other hand, the rising concern for the financial sector and the detection of unethical practises, which are being conducted raises the level of firm specific risk and negatively affects the share price value of the companies.

Impact of 2017 Royal Commission on Share Prices

The shar price movement of AMP Limited is directly influenced by the results and disclosures, which are being conducted by the Royal Commission. In addition, the AMP Limited share price has mainly declined during the financial year of 2018 due to the disclosures of the scandal, which is being conducted by the Royal Commission. This directly altered share price of AMP limited during the disclosures, where the share price declined from the level of 5.43 to the current share price. This decline is directly reflecting the level of unethical measures, which was being conceited by the company over the period. This discloser contained the extra charges, which was imposed by AMP on their superannuation fund investors. the compensation of $5 million was mainly distributed to 50,000 superannuation fund investors to comply with the unethical measures made previously by the management. This disclosure directly reflected the problematic management decisions, which were conducted in the organisation (Theguardian.com 2018).

The disclosures that is being conducted by the Royal Commission against the current operations of Commonwealth Bank are also raising concern for the investors and reducing tis share valuation. In addition, the disclosures conducted during the fiscal year of 2017 and 2018 directly reflects the level of share price decline, which was conducted for Commonwealth Bank. The Royal Commission has conducted allegations regarding the current manipulations, which was being conducted by Commonwealth Bank. The Royal Commission has adequately depicted that CBA has conducted malpractices in their operations, which was going to be disclosed in future (Theguardian.com 2018).

The concept of IRR (Internal Rate of Return) and RRR (Required Rate of Return) has some dissimilarities, which can be detected as follows.

• The major difference between the IRR and RRR is its measure, which is used for selecting the accurate project for investment. The use of IRR directly allows the management to understand the level of returns, which can be provided by a single project. On the contrary, the RRR is a percentage returns, which is used for calculating the NPV of the project.
• The second major difference is the usage and output between the IRR and RRR, which relevantly allows the company to select a financially secure investment scope. The output of IRR is different for all the projects, as it is determined from the level of cash outflows and inflows conducted by the project. However, the RRR for each project is same, as the organisation needs to evaluate different NPV value of the projects (Li and Trutnevyte 2017).
• The last difference between eh IRR and RRR is its significance, which allows the company to detect the accurate project for improving their current financial progress. The RRR is mainly assumed by the company to evaluate the projects survival conditions, while IRR is absolute, where the cash inflows and outflows remaining constant.

The above table directly represents the level of Net Present Value of both Project X and Project Y, which depicts the financial position of the investment. After evaluating the calculation, it can be detected that the overall NPV value of Project Y should be selected as the values is higher and allows the investor to generate high returns from investment (Warren and Seal 2018). Therefore, project Y needs to be selected by the organisation for improving their firm value in future.

The IRR calculation for both Project X and Project Y is depicted, which can help the management in making accurate investment decisions. The calculations directly indicate that the IRR of project Y is higher and can generate high level of income from investment. This was mainly possible due to the high level of cash inflows, which is being conducted by Project Y in comparison to Project X. Therefore, Project Y needs to be selected by the company for obtaining high growth and returns in future.

The calculation conducted in the above table represent the alternative value of required rate of return for both Project X and Project Y. This alternation in the discounting rate does not have any impact on the current decision of selecting Project Y, as the overall performance of the project is high in-comparison to Project X. The values depicted in the above table represents that NPV value of Project is higher even with the alteration in the current required rate of return, which directly indicates that choosing Project Y is beneficial for the organisation. Bader et al. (2018) mentioned that with the use of investment appraisal techniques, organisation are able to understand the current valuation of the projects.

The difference in recommendation of NPV and IRR is conducted under the following circumstances.

• The recommendation will eventually change for NPV and IRR, when the organisation uses a high required rate of return for their calculations. This alternation will not change IRR values, while the values of the NPV will differ under such circumstances.
• The cash flow timing will also have negative impact on the performance IRR, where the alternations in the cash flow will alter the values of IRR and even lead it to negative (Lindvall and Larsson 2017).
• The third alternations that can affect the recommendation of IRR and NPV the is tenure of the project. The time taken by the company in completing the project will directly alter the output of IRR and NPV, which will differ the recommendations for each project.

References and Bibliography:

Au.finance.yahoo.com. (2018). Yahoo is now a part of Oath. [online] Available at: https://au.finance.yahoo.com/ [Accessed 16 Sep. 2018].

Bader, A., Al-Nawaiseh, H.N. and Nawaiseh, M.E., 2018. Capital Investment Appraisal Practices of Jordan Industrial Companies: A Survey of Current Usage. International Research Journal of Applied Finance, 9(4), pp.146-161.

Briston, R.J., 2017. The stock exchange and investment analysis. Routledge.

Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.

DeBoeuf, D., Lee, H., Johnson, D. and Masharuev, M., 2018. Purchasing power return, a new paradigm of capital investment appraisal. Managerial Finance, 44(2), pp.241-256.

Edwards, R.D., Magee, J. and Bassetti, W.H.C., 2018. Technical analysis of stock trends. CRC Press.

Li, F.G. and Trutnevyte, E., 2017. Investment appraisal of cost-optimal and near-optimal pathways for the UK electricity sector transition to 2050. Applied energy, 189, pp.89-109.

Lindvall, N. and Larsson, A., 2017. Investment Appraisal in the Public Sector–Incorporating Flexibility and Environmental Impact. Journal of Advanced Management Science Vol, 5(3).

Lokman, S., Volker, D., Zijlstra-Vlasveld, M.C., Brouwers, E.P., Boon, B., Beekman, A.T., Smit, F. and Van der Feltz-Cornelis, C.M., 2017. Return-to-work intervention versus usual care for sick-listed employees: health-economic investment appraisal alongside a cluster randomised trial. BMJ open, 7(10), p.e016348.

Ogunbayo, O.T., Odebode, A.A., Oyedele, J.B. and Ayodele, O.T., 2018. The significance of real estate development process analysis to residential property investment appraisal in Abuja, Nigeria. International Journal of Construction Management, pp.1-10.

Sorgato, M.J., Schneider, K. and Rüther, R., 2018. Technical and economic evaluation of thin-film CdTe building-integrated photovoltaics (BIPV) replacing façade and rooftop materials in office buildings in a warm and sunny climate. Renewable Energy, 118, pp.84-98.

Theguardian.com. (2018). AMP to compensate super investors after fresh humiliation at royal commission. [online] the Guardian. Available at: https://www.theguardian.com/australia-news/2018/aug/16/amp-admits-fees-were-so-high-100000-super-investment-made-a-loss [Accessed 16 Sep. 2018].

Theguardian.com. (2018). Banking inquiry accuses NAB and CBA of possible criminal offences. [online] the Guardian. Available at: https://www.theguardian.com/australia-news/2018/aug/25/banking-inquiry-accuses-nab-and-cba-of-possible-criminal-offences [Accessed 16 Sep. 2018].

Utami, W. and Nugroho, L., 2017. Fundamental versus technical analysis of investment: Case study of investors decision in Indonesia Stock Exchange. The Journal of Internet Banking and Commerce, pp.1-18.

Viney, C. and Phillips, P. (2015). Financial Institutions, Instruments and Markets. 8th edition.

Warren, L. and Seal, W., 2018. Using investment appraisal models in strategic negotiation: the cultural political economy of electricity generation. Accounting, Organizations and Society.

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