|UCBS7037: Financial Management|
1. Using the company screening tool of Capital IQ, find and disclose beta (1 year) for companies operating in your selected company’s industry/sector (company you selected for the first task). Find the average beta of the companies, compare with your selected company beta, and briefly comments on the results.
2. Find out your selected company’s beta from published sources and calculate the rate of return expected from your firm’s share on the assumption that the CAPM holds.
Part 1: you are going to consider the gearing ratio (capital gearing) using data from Capital IQ. There are alternative measures of calculating capital gearing. Choose one measure and be consistent when you compare with your selected company’s competitors gearing ratios. You only need to select 5 competitors of your target company (company selected in Portfolio task 1) and disclose these results. Comment briefly on your results.
Part 2: We cannot scientifically establish the best debt to equity ratio. Many complicating factors determine the actual gearing levels adopted by the firm. Some firms are under the influence of particular factors to a greater extent than other firms: some may have very low borrowing capacity, and others may have management keen on signaling confidence in the future. List the dominant factors for your selected company (maximum five) and briefly explain each factor’s influence to determine gearing levels. Discussions should be supported by capital structure theories (one relevant theory only), making reference to journals/articles (maximum two journals/articles).