Principles of Finance Free-Samples for Students-Myassignmenthelp

Questions: 1.Examine the share price history and history of traded volumes over the past five years, Identifying the main causes of changes in the share price during this period. Based on its stock price, do you think the company has performed well over the past five years?2.Calculate the Market Capitalisation of the company as of the end of fiscal year of 2016. Do you think the stock is under-priced or over-priced?3.What is the mix of debt and equity financing? What types of debt and Equity are currently used? Does current Financing Strategy highlight any impending risks? Critically evaluate the financing policy adopted by the company.4.If you had $10,000 savings, would you invest in this Business? Why or why not? Discuss. Answers: Introduction: Slater Gordon Limited is among Australias leading national consumer law firms. The very mission of the company is to provide affordable access to high quality legal services on a consistent basis. The history of the company reflects back to a small room in which the foundation of the business was laid down by Mr. William (Bill) Slater and Hugh Gordon who initiated the service union for workplace entitlements and claims in the Australian Railway Unions Unity Hall Building on Bourke Street in Melbourne in 1935. Though Hugh Gordon lost his life in the Second World War during an aircraft encounter by German night fighters, his name is still included in the business due to his gratuitous contributions. Bill Slater laid the foundation by introducing an act in the Parliament as an Attorney General and welcomed the footprints of Workmen Compensation Act. However, he died in 1960 leaving behind the huge responsibility of managing the firm to its partners. His death was a huge grief for the n ation but the firm kept on working in the direction of legal welfare to people (Media.slatergordon.com.au 2017). The beginning of legal services in United Kingdom is much earlier. It dates back 25 years to the 1920s where Mr. Russell Jones and Walker laid the foundation (as the company was known at that time). This firm was also determined to provide justice to workers and other people with the help of prevalent laws and landmarked a successful career through winning numerous cases (Media.slatergordon.com.au 2017). Today Slater Gordon Limited has marked its name as a leading consumer law firm in Australia as well as United Kingdom. It employs around 1210 people covering 54 locations throughout Australia and around 3130 people covering 25 locations in the United Kingdom. Its head office is in London. Further, its activities are not confined to workmen laws and entitlements but have grown to specialist legal services in wide range of areas. The areas cover liability and compensation law, general services like family and relationship laws, wills, estate development and planning etc. with over 70 year history in dealing with cases for socially and economically disabled. The major cases involve commercial and professional negligence cases as well as estate negligence litigations. It is also involved in a number of class actions and recently won the recovery case of survivors of drug thalidomide which caused several children severely handicapped leading to permanent disablement in the 1960s (Media.s latergordon.com.au 2017). 1. Examining the share price history and history of traded volumes over the past five years, identifying the main causes of changes in the share price: Slater Gordon was the first among the various law firms, which got them listed in the stock exchanges. The firm has a long list of legendary victories against many blue chip companies. However, the successful lawyers though accomplished in establishing in a legal giant but could not execute it well in the hedge funds. The main concern among the investors is whether the firm is able to execute what it plans for and the available knowledge and equipment is adequate for bearing the load of possible heavy risk if the market does not turns out positive (Media.slatergordon.com.au 2017). The share price history of Slater Gordon is much like a roller coaster. Since, the firm was first to get itself listed in the stock exchange, it got a good response initially with a positive moving market value. Then the ever-expanding plans of the firm posed some danger to the life of its shares in the market especially when compared to those of competitors with much equipment to back up their market position (Media.slatergordon.com.au 2017). Figure 1: Depicting the share price movement of Slater and Gordon Limited (Source: Reuters Australia 2017) The overall share price movement of Slater and Gordon Limited for 5 years could be identified from the above figure. In addition, rapid increment in share price of the company is already seen during the 2012 fiscal year. However, after the stock touched the price level of 8 to stated to decline with a price level of 0.09. This rapid decline in shares mainly occurred after the announcement of the fiscal years annual report. The overall announcement of loss incurred by the company in 2016 fiscal year mainly declined its share price. The decline in share price mainly resulted from the strong selling, which was conducted by banks to recover their debts from the company. This discounted prices offered by the bank on share price of Slater and Gordon Limited mainly forced its share price to free fall. Palmer and Palmer (2017) stated that overall share price movement mainly portrays the The following events incurred, which led to the decline in its overall share price. Slater Gordons books were found erroneous leading to a sharp decline in the share price of the company. The suspicions lead to a routine review of the books of the company by ASIC. The Chief Financial Officer of the company Mr. Wayne Brown departed after serving the company for 12 years. His departure news came as a negative slung for the company. In the end of year 2015, there was an announcement of slower earnings of the company for the beginning of year 2016. This announcement again lead to fall in share prices however, the management later on confirmed of earning well in future. Due to constant fall in the share price of the company, it was removed from ASX 100. A leading law firm Maurice Blackburn launched a class action against the company. Purchase of worth $1.3 billion professional services wing of UK firm Quindell. The purchased wing was investigated to be involved in fraudulent activities and had been directed to restate its accounts earlier (Ju, Leland and Senbet 2014). Over the year 2016, it has twice altered its accounts relating to 2014 and 2015, the earnings guidance has dropped and some accounting standards are changed altogether. These changes have played a very important role in the $2bn plunge in its share value. Figure 2: Depicting the price volume movement of Slater and Gordon Limited (Source: Reuters Australia 2017) Moreover, the overall surge in volume could only be witnessed in 2016, where maximum of the shareholders stated to sell its shares in the market. In addition, after the announcement of the fund conducted by the company the share price volumes has rapidly surged, which indicates the low share price quoted by the company over the period of time. Watson (2015) stated that share price volume mainly indicates the overall price action trend of a company. The company reported a loss of nearly $1 billion for the first half of the financial year 2016. The companys shares are worth less than 30c, creating a loss for the investors. Once, the companys shares moved to $8 each which are now generating losses of around $2 billion for the investors. Further, the rivals of the company are generating more class actions inching themselves more closer to the business level of the company. The current manager of the company, Mr. Andrew Grech has also been talked out for resignation. Before the acquisitio n of Quindells professional services division, which is now known as Slater Gordon Solutions, the company had $563m of work under way on its books (Reuters Australia 2017). However, the vendor business had $420m, calculating a total work value of $983m. However, by the end of June, that number of impending cases under the business of the company and its value dropped to $826m. Nevertheless the latest accounts depicts that the company now thinks its real value was just $677m, showing a discrepancy of $149m. Almost 80 per cent of the difference of $149m related to Slater Gordons existing business, which had nothing to do with Quindell. In other words, the work valued at $118m had totally disappeared which was expected to turn into cash one day. According to the law firms, the reason for this difference is the adoption of a more conservative approach for preparation of its accounts. Late last year, it long time auditor, the company for Ernst Young ditched Pitcher Partners and the for mer were bought under investigation by the Australian Securities Investments Commission. Thus, a successful story of accomplished lawyers is slowly turning out to be a world of poorly executed deals during the move of making themselves worlds largest plaintiff legal firm (Media.slatergordon.com.au 2017). 2. Calculating the market capitalisation of the company as of 2016 and stating whether it is under-priced or over-priced: Growth Year Dividend Growth 2013 0.07 2014 0.08 14.29% 2015 0.09m 12.50% Current growth rate 12.50% Current Dividend 0.09 Risk free rate 2.68% SP 200 SGH Average 0.03556184% -0.38427611% Covar 0.000101298 std (SP200) 0.0070 Beta 2.085870272 cost of equity 0.035557275 DI 0.10125 Theoretical Stock Price 3.54 Actual Stock Price 0.09 Table 1: Depicting valuation of Slater and Gordon Limited (Source: As created by the author) From the overall evaluation of table, theoretical share price of Slater Gordons has mainly derived, which could in turn help in identifying the over value or undervalue condition of the company. The current theoretical share price of the company is mainly account for 3.54, while the current share price is mainly derived at 0.09, which indicates undervalued condition of the company. This only indicates that share price of the company is relatively higher than the actual share price of the company. The market capitalisation of the company in 2015 was mainly at 79,285,500 (Media.slatergordon.com.au 2017). The market capitalisation of the company has mainly resulted in the declining share price obtained by the company at the end of 2016. The evaluation of table 1 mainly helps in identifying relative growth in Share price, which could be obtained by Slater and Gordon Limited. However, the current decline in the overall profits of the company has many escalated and lunch with the overall share price. This decline in overall share price is due to the unstable financial condition of Slater and Gordon Limited during 2016. The litigation against the company is mainly provided the base for the decline in share price, which instigated new lows to form for the company. Watson (2015) mentioned that use of dividend discount model Emilia loves investors to identify or gauge into the current share price valuation of the company and determined whether it is overvalued undervalued. On the contrary, Palmer and Palmer (2017) argued that Use of only dividend discount model could not allow investors to identify risk involved in investment, which might hamper investment capital of the investors. 3. Depicting mix of debt and equity financing, the types of debt and equity currently being used, and does current financing strategy highlights any impending risks: The company in 2013 has ma the net debt of 683.3, while its net assets are mainly depicted at 305.1. In addition, the overall equity that is been used by the company, There contrition recorded by the company is mainly at 1,116,048,000 equity share value. In addition, the company mainly used equity and normal share issues, as the only instrument in collecting capital from its equity financing. Figure 3: Depicting the price volume movement of Slater and Gordon Limited (Source: Media.slatergordon.com.au 2017) The above figure mainly depicts the relevant loans and debts that is been accumulated by the company over the period of 2016 fiscal year. The accumulation of bad debts is mainly conducted by the bank to ensure high-end availability of funds to support its activities. The company uses both short term and long-term borrowings to support its activities and reduce shortage of funds. On the other hand, Kemp et al. (2016) criticises that high-end accumulation of loans might hamper the overall financial condition of the company. Slater and Gordon Limited has mainly used Debt to support its overall operations the company issued shares as a Collateral for the Debt accumulation Process. This increased issuance of shares to the debt holder may be increased. The debt is mainly Accumulated by banks which during 2016 resulted in a massive sell in is shares. The main problem that was conducted by Slater and Gordon Limited was the high accumulation of debt without adequate research. The company coul d have reduced debt accumulation and conducted ethical operations, which might have decreased the overall insolvency condition. Ju, Leland and Senbet (2014) mentioned that use of adequate Dept accumulation mainly allows companies to improve their solvency condition where maximum of the activities are supported by equity funding. On the other hand, Kemp et al. (2016) criticises that some of the companies use high accumulation for reducing any kind of tax that need to be paid to the government. 4.Depicting whether $10,000 investment in this business is viable or not: The investment in Slater Gordons is not advisable, as the companys overall stock has declined over the level of 9 cents and might not produce any kind of return from investment. The overall share price of the company mainly decreased due loss incurred by the company in 2016 and there is no dividend paid in 2016 fiscal year due to the high loss imposed by the company in fiscal year. After seeing the overall the accumulation and volatile financial condition of Slater Gordons It is mainly advisable not to invest $10,000 into the business. The company is not able to provide any dividend for the year, 2016 and 17, which increases the chance of dividend decline. Furthermore, the use of adequate Dept and equity capital structure of the company in improving its current financial condition. The company obtains the burden of higher interest will increases the overall cost and reduces the profit in 2016. Watson (2015) mentioned that use of adequate debt measures could eventually help the company in improving its operational capability and reduce cash outflow. Conclusion: The overall assignment mainly focuses in identifying the investment opportunity, which could help investors in increasing the return from investment. Slater Gordons Is main evaluated in the assignment to identify relevant financial condition of the company. for the more the use of dividend discount model is conducted to identify the current overvalue undervalue condition of the company. From the ore evaluation it could be identified that Slater Gordons is currently under financial crunch where it sales have dropped rapidly due to a news regarding its ethics. Moreover, the current financial condition of the company is relatively not adequate from an investment perspective. Thus, from the overall evaluation it could be identified that financial position of the company is not adequate investment risk is relatively higher and my temper investment capital. Reference: Reuters Australia. (2017).${Instrument_CompanyName} stock quote, ${Instrument_CompanyName} company overview | Reuters Australia. [online] Available at: https://au.reuters.com/finance/stocks/overview?symbol=SGH.AX [Accessed 9 May 2017]. Palmer, D. and Palmer, D. (2017).Banks dump Slater debt. [online] Theaustralian.com.au. Available at: https://www.theaustralian.com.au/business/companies/banks-dump-slater-gordon-new-lenders-eye-debttoequity-scheme/news-story/671d3a74bbc9babb91944ba56c6d82de [Accessed 9 May 2017]. Media.slatergordon.com.au. (2017). [online] Available at: https://media.slatergordon.com.au/slater-and-gordon-annual-report-2015.pdf [Accessed 9 May 2017]. Kemp, S., Chan, M., Chen, Z., Fetchenhauer, D., Helton, W.S. and Steiniger, T., 2016. Psychological factors in investment choice between shares, bank deposits, and residential real estate in New Zealand, Hong Kong, and Germany. Watson, L., 2015. What's the deal with preference shares?: investment insights.Personal Finance Newsletter,2015(414), pp.8-9. Ju, N., Leland, H. and Senbet, L.W., 2014. Options, option repricing in managerial compensation: Their effects on corporate investment risk.Journal of Corporate Finance,29, pp.628-643.