Marketing Due Diligence And Price Movement

The Risk of Equity for the Investor

Discuss about the Marketing due diligence and price movement.

The listed shares are those that can be freely sold and purchased in an official secondary market (Stock Exchange). The companies that put them into circulation must meet certain requirements. This is very important for an investor, because it allows you to undo the investment at any time and receive in return an objectively established sale price (the market price), without having to search for a buyer for the shares on your own. The portfolio that I have selected in this paper are Woolworth representing Multinational Corporations based in Australia and the foreign multinational segment is represented by British Petroleum.

Risk is an inherent characteristic of equity securities. Risk means uncertainty. You do not know what profitability (dividends and / or capital gains) you can get from your investment. The profitability can be much lower or much higher than expected (Collison and Barnard, 2007).

In general, when talking about equity risk, only price risk is considered, since it is understood that the rest of the risks (insolvency, inflation, interest rate, exchange rate …) and They are included in this one. That is to say, the main risk of an investment in shares is that its price falls. If you had to sell your shares when the price falls, you could lose part or almost all of the capital invested.

Not all shares are subject to similar risks. It depends a lot on the company that issues them: its size (is it a large and established company or a recently created one?), Geographical area and currency (Spain, euro zone, emerging market), sector of activity (financial, electrical, technological), etc.

Let’s go back to the binomial risk / profitability: investors are willing to assume a greater risk when they have the possibility of obtaining higher returns (Eastaway et al., n.d.).

At the time of purchase, the number of shares that could be purchased was 384 shares. On 24 November 2017, the share price had increased marginally to A$26.5, which menas that the investor had made A$10176. A profit of $176.

British Petroleum is a gas and oil company with its headquarters in UK. On 17November 2017, the share price was A$511, which means that the shares purchased were 19. On 24^th November 2017, the share price had not changed, which means that this stock had not made any profit. 

Percentage Increase or Decrease in Stock Price

You must consider your investment in actions with an eye on the medium and long term. Equity has been the category of assets with the highest long-term profitability. In the short term, however, it is a risky investment due to its high volatility.

Volatility is a way of measuring risk and refers to the large variations in price and profitability that a market, index, portfolio or financial asset suffers. If an asset rises or falls much in a short time, it is said to have high volatility (EASTAWAY, 2018).

The effect of volatility tends to decrease over time. Therefore, the long-term investor should not be overly alarmed by the daily fluctuations of the markets. Never invest in stocks which you will need in the short term. Price and value of shares Screen with stock quotes. The price of an action is not synonymous with its value. What definitely determines the price of a stock is the supply and demand in the market. A company issues a limited amount of securities, so if there are more buyers than sellers, it will raise its price. Supply and demand depend on the valuation that investors make about the company that issues the shares. The main factors on which this assessment depends are expectations about the future benefit of the company, its growth rate and the expected evolution of interest rates. And other more general factors also influence, such as expectations about economic evolution and investor confidence. When we talk about stocks, the word value can mean several things: Nominal value of an action: The result of dividing the social capital of the company among the number of shares issued. Market value of a share: The company’s trading price in the stock market, resulting from supply and demand, so it varies continuously(Millard, 2009). Market value of a company: Su stock market capitalization, that is, the price of a share multiplied by the number of shares issued. For example: A certain company has issued 20 million shares, which are currently trading at 30 euros each. This means that the market values the company at 600 million euros. It is the price that another company should pay to get all the shares of the company. 

Normally, the price of an action is greater than its book value, but not always. Value of liquidation of the company: It is the estimated sale price in case your assets are liquidated and your debts are canceled. For an investor, who usually looks for companies with the capacity to generate profits in the future, the liquidation value has little interest. Current value: It is the value, today, of the flow of future flows that is expected from an investment. , at a certain interest rate. Fundamental or intrinsic value: It is not an exact value, since it depends on future forecasts of benefits that may vary depending on the analyst who makes them. For its calculation, somewhat complicated, a series of business fundamentals are analyzed, including sales, profits, own resources, assets, business prospects, etc. Financial policy of the dividends: The dividends are considered returns of capital and are integrated in the tax base of savings, which currently taxed by installments, depending on the total amount, as compiled in the following table: Taxable tax base savings for 2015 up to% taxation € € 6,000 20% € 6,001,000 € 22,000 € 50,000 from now on 24%

Australian Based MNC

 Types of sharesAlmost all the shares traded on the stock exchanges are ordinary shares, which are the ones we have described so far. They give the right to participate in the distribution of benefits and in the equity resulting from a liquidation, to the preferential subscription in the issuance of new shares or bonds convertible into shares, to attend and vote at the general shareholders’ meetings and to challenge social agreements There are other types of shares that have small nuances in terms of incorporated rights, such as preferred, registered, non-voting and redeemable shares. However, they are very low emissions in the Australian market. For the investor it is much more interesting to know other classification criteria: According to the “quality” of the issuing company: Star values or “blue chips”: These are shares of companies with solid economic-financial structures, well located in their sector and that also tend to pay dividends. They are securities with high market capitalization and high liquidity, so the investor would rarely have problems selling them. Examples: Telefónica, Repsol, Coca-Cola, IBM, etc. Speculative values or: Located at the other extreme, are the shares of companies of any sector, small or medium size and low capitalization, which incorporate a high speculative component and, therefore, a high risk. According to the “cyclical” which is the sector: Cyclical actions: They belong to companies whose generation of profits is linked to the general trend of the economy. The products or services of these companies are less demanded by consumers during negative economic cycles and more demanded during the most buoyant periods. Examples: Automotive industry, airlines, ac

At the other extreme are the shares of companies less affected by the ups and downs of the economy in general. These actions are more stable during difficult times because the demand of consumers does not decrease so dramatically during negative cycles. Examples: Electric companies, food. According to your forecast of benefits and revaluation: Actions type “income” or ” of income “(income stocks): They are actions of companies with a forecast of growth of your sales and profits. Normally, they do not pay dividends, so the investor seeks profitability through the revaluation in the medium and long term. They usually have medium-high prices in relation to their current benefits. A subdivision of this category are the “aggressive growth” actions, which are the most risky (EASTAWAY, 2018).

In it we observe that the 500 largest companies represent 65.7 percent of the total sales of the 2000 largest companies and 74.5 percent of the profits. From this we infer that it is really significant, in terms of its power on a global scale, to consider as dominant centers those who exercise these 500 companies.

Foreign Stocks (ADR’s)

This is the theme, we consider it worthwhile to devote our attention to this group of companies.

Let’s start our journey through the territorial component. An analysis of the territorial articulation of the power of these companies should consider, at least, three major levels of territorial incidence.

1. a) As the location of the central headquarters and, therefore, of the center of absolute power.
2. b) As to the location of the subsidiary decision centers within each country.
3. c) With regard to the production and marketing centers through which they carry out their economic activities, functionally distributed worldwide and within national territories. The first thing we should note is that, given the limitation and objectives of this work, we will limit ourselves to the territorial component linked to the decision centers. We will leave aside the articulation of productive centers, which would require other sources of information and a different analysis methodology.

A fact of non-secondary importance refers to the fact that any location implies a fixation in a specific territory, subject to some conditioning factors, not only economic, but also social, cultural, political, ideological and even military, with which each productive settlement must interact. . In certain aspects it will be conditioned by them, while in others it will be able to rely on them to reinforce their power or influence.

In today’s article I will talk about what are the factors that affect the value of the shares, something essential if we intend to analyze a listed company (McDonald, Ward and Smith, 2013).

The value of the shares depends on the expected future flows and the profitability demanded by the shareholders, these are the two factors that we should roughly highlight, however, there are two aspects that affect the determination of future flows which they are: the profitability that the company in question has obtained in its investments and on the other hand the growth of said company during a period of time. In turn, the profitability of the investment can depend on three factors such as: The assets that have been used, the finance rates to which the company is exposed and finally the operations that it has done, that is, if these operations have granted any return or on the contrary have generated losses (Pinto, 2010).

The other aspect to take into account to measure the value of the shares is the required return to the shares, that is, the profitability that shareholders require a company to make an investment in it, said required profitability depends on two factors the first is the interest rate without risk, which is an aspect in which the company has no control and on the other hand we find the risk premium for making an investment, this magnitude varies depending on the type of company. The higher the risk of the investment, the higher the premium received for the investment (McMillan, 2006).

Australia does not escape from this reality. As a result of the new trade liberalization policy decreed in 1989, a transformation process began for both the public sector companies and the legislation that regulates the customs matter and the promotion of non-traditional exports. 

Comparing Portfolio Performance

Australia is a country highly dependent on oil exports, which has suffered from political instability and in which multinational companies have faced sudden fluctuations in GDP and demand in recent years, exchange controls, depreciation of its currency and other adverse circumstances that make it an attractive country for analyzing the adaptation of subsidiaries to this type of environment(MacColl and Nichols, 2015). On this multiple range of problems that both national companies and multinationals that produce goods and services must face in the international arena, this research will be discussed.

When an investment of A$ 10,000 is invested on shares of BHP Billiton, the investor will only recoup marginal profits from the investment since the growth of the share is at a marginal 0.12% therefore making it almost marginal in profits.

On the other hand Benitec Biopharma is trading at its lowest point of A$ 0.22. However, its rise is significant at 25.52%. This is an attractive foreign stock although its share value is very small (Pinto, 2010).

5a. Determine whether the stock performance of each of your foreign companies is influenced by the exchange rate movements of the company’s local currency against the Australian dollar

These are shares of” blue chip “companies that generate income by dividends on a regular basis.Its price per share is usually high, and the investor does not expect to realize gains due to its revaluation (goodwill), but the lower risk shares are considered in the long term.Example: Electric companies “value” stocks: These are shares that they are considered cheap in relation to those of other companies in comparable sectors and sizes or because they have a good price / earnings per share (PER) ratio. The investor buys this type of stock with the hope that the price of quotation adjusts to the rise and thus obtain a surplus value. Actions “of growth” or “of revaluation” (growth stocks):

Logically, the market price also varies, according to the laws of supply and demand. Accounting value of a company: It is the net worth of a company, that is, the value of own resources that appear on the balance. Accounting value of an action: It is the book value of the company divided by the number of shares issued. 

References

Collison, D. and Barnard, R. (2007). Share valuation handbook. Kingston-upon-Thames: CCH.

EASTAWAY, N. (2018). Practical share valuation. [S.l.]: Bloomsbury Professional.

Eastaway, N., Elliott, D., Kennedy, S., Blundell, C. and Cook, C. (n.d.). Practical share

valuation.Tottel Pulishing.

MacColl, M. and Nichols, R. (2015). Freedom’s price. Honsdale, USA:Calkins Creek.162091624X (ISBN13: 9781620916247)

McDonald, M., Ward, K. and Smith, B. (2013). Marketing due diligence. Hoboken, N.J.: Wiley.

McMillan, D. (2006). Share price movements. Bradford, England: Emerald.

Millard, B. (2009). Millard on channel analysis. Harriman House Limited.

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