Financial portfolio analysis
With 2,000,000 British pounds, there are many companies in which the money can be invested in. The investment decision is to be done according to the level of return expected from each investment. I decided to settle on six sectors as components of my portfolio. These include real estate, land, transportation, equity, banking instruments and construction materials. According to Nelson & Quick (2008), the behavior of a company should be considered when considering an investment in it.
Real Estate and land sectors
I chose to invest in Great Portland Estates for the purpose of benefiting from the land and real-estate transactions of the company. This company involved in the management of land real estate interests of clients all over the world. I chose this company because it has been performing pretty well.
Investment in the real estate industry is usually faced with various challenges. One of the challenges is that sometimes the prices of the real estate products fall at a very alarming rate leaving the investor with a very large loss. Despite this challenge, I had to go ahead with the investment since I am usually ready to take up risk. I usually believe that so as to make it in business, it is important to accept some level of risk. It is important to note that the high risk ventures are usually the most profitable ones.
I allocated £800,000 of the total amount available for investment in this company so that I may be able to acquire over 1,300 shares whose value stands at 575. The share prices of the company show that it is performing well. This is as indicated by the share price table indicated below.
Share price analysis
| Last | Change | Bid | Ask | Volume | Updated |
| 575.00 | 0.70% | 575.00 | 576.00 | 270181 | 13:48:27 |
My decision to invest in this company was also based on the performance of the company as indicated in its financial statements.
I relied a lot in the ratio analysis of the company. Ratio analysis since it is one of the best tools for company analysis (Moyer, McGeehan, & Kretlow, 2009)
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| Liquidity ratios
I had to come up with the liquidity measure of the company. This is because I wanted to invest in a company whose liquidity was good. As per the financial statements of the company, the liquidity of the Great Portland Estates is good. Therefore, investing in this company is a brilliant idea. This is because the company’s performance would not be affected by inability to pay for its short term financial obligations. If the current assets of a company are able to pay for short-term obligations, then it is safe to invest (Analoui & Karami, 2003). Current ratio This is the measure of the capability of the company to pay for its financial obligations through relying on its current assets. This is derived by dividing the company’s current assets by its current liabilities. Therefore, the current ratio of the company for the year 2012 =1963.7/186.7=10.51 A current ratio of 10.51 means that the company is able to pay for its short-term financial statements comfortably. From the financial statements, the profitability of the company is seen to be good. I arrived at this position after calculating the gross profit margin of the company. The gross profit margin is given by
The gross profit margin of The Great Portland Estates=25.8/57.9=0.44=44% With a profit margin of 44%, the company will be able to give me good returns on my investment. This will ensure that from the good profitability of the company, I will be able to get good amount of money. From the balance sheet, the company seems to be having better standing with regards to the retained earnings experienced. The company’s retained earnings as at 31st march 2012 went higher to 976.2 from 844.6. This shows that the company is getting better in terms of performance. This made me get confidence in investing in this company. Transportation Sector The transportation industry is the other component of my portfolio. I decided to invest £300,000 in this component of my portfolio. I chose this level of amount because the transportation industry is not diversified enough to reduce the risk of inactivity in the business activities. I decided to involve myself in this industry through Globaltrans. Globaltrans is one of the largest transportation companies listed in the London Stock exchange. The company has been able to offer the best freight rail transportation services in Russia. The company’s good performance has enabled it to be quoted in the London Stock exchange. I chose this company because it has been able to receive worldwide acceptance. This means that its performance will be able to assure me good returns on my investment. The fact that the company has a strong client base of blue chip corporate bodies is an indicator of good performance. This means that it will be very hard for the company to lack business transactions. It also suggests that I will be able to benefit from the voluminous nature of the transactions engaged in. As indicated by some key statistics for the company, the figures for the company are impressive. The increased number of fleets is an indicator of a growing company. Additionally, the revenue of the company seems to be increasing reassonably since the year 2009.
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Looking at the data below, the company’s asset base seems to be increasing since the year 2007. This means that there is hope that the company is getting more stable in subsequent years. This means that my investment in this company will be able to give me assurance that I would not lose as a result of the company’s instability.
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Construction
I decided to invest £400,000 Orascom Construction Industries in about 1000 shares. This is one of the best performing companies listed in the London Stock Exchange. My decision to put my money in this company was first motivated by the company’s share price.
Year-to-date position
| Year high | 45.06 |
| Year high date | 12 Aug 2013 |
| Year low | 25.87 |
| Year low date | 24 Jun 2013 |
| Latest Share Price | 38.40 |
| Last close | 38.40 |
| Last update | 4 Dec 2013 18:15 |
| Last trade time | 2 Dec 2013 14:30 |
As seen from the above information, the company’s share price rose by £19.19 from 25.87 to 45.06. This is a huge increase in the prices of the company shares meaning that the company is experiencing good performance and profitability. The rising prices of the company shares mean that many people are interested in investing in the company. This means that the prices will keep on getting higher as demand for the shares increases. With the latest share price position outstanding at 38.40 British pounds, the company shows a stable trend in the movement of its share prices.
The extracts below from the audited financial results of the company were able to give me an opportunity to find out more about the company.
Summary of Consolidated Results for Q4 2012:
From the consolidated financial statements, the consolidated revenue for the company went up by 5.3%. The amounts in US dollars rose from US$ 1,418.4 million to US$ 1,492.9 million .This shows that the company is making more money than before.
| Orascom Construction Industries | ||
| Consolidated Income Statement | ||
| Q4 2012 ended 31 December 2012 | ||
| Q4 2012 | Q42011 | |
| US$ millions | US$ millions | US$ millions |
| Total revenue | 1,492.90 | 1,418.40 |
| Cost of construction and goods sold | -1,120.90 | -1,015.40 |
| Gross profit | 372 | 403 |
| Selling, General and administrative expenses | -71.6 | -60.9 |
| Other operating income (expenses) | -12.3 | 18.6 |
| Provisions | 2.1 | -19.7 |
| Income from operations | 111.3 | 271 |
| EBITDA | 290.2 | 341 |
| Depreciation | -79.7 | -70 |
| Goodwill impairment | -99.2 | |
| Interest income | -12 | 0.6 |
| Interest expense | -153.4 | -67.2 |
| Foreign exchange gain (loss) | 16.8 | 2.2 |
| Net financing cost | -148.6 | -64.4 |
| Income from investments | 4.6 | -49.4 |
| Income before taxes & minority interest | -32.7 | 157.2 |
| Income taxes | -46.7 | -59.2 |
| Income before minority interest | -79.4 | 98 |
| Minority Interest | -1.8 | -18.9 |
| Net income before discontinued operations | -81.2 | 79.1 |
| Discontinued operations | 45.3 | |
| Net income after discontinued operations | -81.2 | 124.4 |
| Net income | -81.2 | 124.4 |
From the above consolidated income statement for the company, it is evident that the companies total revenue for the latest quarter is higher than that of the previous year. It is worth noting that the company has a loss for the latest year. I decided to invest in this company despite the negative results since I am aware that the industries costs had gone up unexpectedly. This means that the cost of goods sold at the same level had to go up. For example, the cost of construction and goods sold rose from 1015.40 to 1120.90. This means that this rise reduced the level of profitability. With the increased level of total revenue, the company will be able to purchase the construction materials in bulk thus reducing the cost involved.
Additionally, the company has a positive gross profit margin of 25%. I obtained this from dividing the gross profit by the revenue of the company.
Gross profit margin of Orascom Construction Industries= 372/1,492.90=0.25
Orascom Construction industries
Consolidated Balance Sheet
As at 31 December 2012
2012 2011 ASSETS
Non-current assets
Property, plant, and equipment 2,252.70 2,195.90
Assets under construction 1,241.00 1,302.60
Payments for purchase of investments 0.60 –
Other long term assets 71.30 43.70
Investment in associated companies 70.20 68.50
Investments available for sale 66.20 64.70
Long term receivables 105.00 95.00
Deferred income taxes 4.60 1.90
Goodwill 1,741.40 1,831.50
Total non-current assets 5,553.00 5,603.80
Current assets
Inventories 399.60 369.40
Trade and other receivables 2,001.20 2,117.60
Investment in marketable securities 1,213.70 17.30
Assets held for sale 375.40 497.20
Cash and cash equivalents 1,018.20 1,235.10
Due from clients 508.90 452.40
Total current assets 5,517.00 4,689.00
Total assets 11,070.00 10,292.80
LIABILITIES
Non-current liabilities
Long-term loans 2,243.40 2,391.10
Deferred income taxes 297.50 257.70
Long-term provisions 561.40 246.10
Other long-term liabilities 115.10 143.60
Total non-current liabilities 3,217.40 3,038.50
Current liabilities
Trade and other payables 1,813.00 1,746.80
Due to clients 172.70 145.30
Bank overdraft and current portion of long-term loans 73.40 1,472.00
Income taxes payable 170.20 154.30
Provisions 675.10 150.60
Current liabilities 5,404.40 3,669.00
Total liabilities 8,621.80 6,707.50
SHAREHOLDER’S EQUITY
Share capital 189.90 191.60
Legal reserve 98.30 98.30
Other reserves 791.30 789.50
Retained earnings 1,384.50 2,542.80
Cumulative adjustment on transaction of foreign entities (99.10) (93.30)
Treasury shares (89.30) (81.70)
Hedge reserves (17.30) (63.80)
Total shareholders’ equity 2,258.30 3,383.40
Minority interest in subsidiary companies 189.90 201.90
Total equity 2,448.20 3,585.30
Total liabilities and equity 11,070.00 10,292.80
From the balance sheet extract shown above, I was able to get the information regarding the company’s worth. From the balance sheet above, the company got stronger in the year 2012 with the asset base increasing by 778 million. This was a rise from 10,292.80 to 11,070.00. This shows that the company is able to create more asset sets. This means that if the company is able to get more assets, then there is a good chance for the company to succeed. Additionally, the amount due from clients increased to 508.90 from 452.40. This shows that the clients are willing to get more products from the company. This shows a growth in the customer base indicating that the company is getting more of the market share which is good for good performance.
From the balance sheet, I was able to learn that the company has the ability to pay for its short-term financial obligations comfortably. I learnt this after calculating the current asset ratio.
Current ratio of Orascom Construction Industries= 5,517/5,404.40=1.02
It is worth noting that a company whose current ratio equals or is above 1 is usually in good for investment purposes.
Bank instruments
I had to allocate 300,000 in Westpac Group. I allocated this amount of money since I had decided to hold 1,000 capital notes of Westpac Group whose face value is $100. One thing that motivated my investment in this area included the dividend history of the Group. Dividend payments usually give a good reflection of the state of affairs of a company (Longenecker, 2009).
This is well explained in the information below
Dividend payment history
| Payment date | Rate | Franking level | New Zealand imputation credits | DRP* | DBP** |
| Dividends paid on Westpac ordinary shares | NZ $ per share | Prices paid on shares | |||
| 02/07/2013 – special dividend | 10 cents | Full franked @ 30% | $0.009 | $28.94 | n/a |
| 02/07/2013 | 86 cents | Fully franked @ 30% | $0.08 | $28.94 | n/a |
| 20/12/2012 | 84 cents | Fully franked @ 30% | $0.08 | $24.86 | n/a |
| 02/07/2012 | 82 cents | Fully franked @ 30% | $0.08 | $20.38 | n/a |
| 19/12/2011 | 80 cents | Fully franked @ 30% | There are no prior numbers. | $20.32 | n/a |
From the information shown above, the amount paid on each share shows a positive movement since the year 2011. As from the year 2011, the prices increases from 20.32 to the latest dividend paid which are 28.94. This shows that I will be able to benefit from the regular and growing dividend paid by the company. Companies whose dividend payments are regular and growing are the best for investment (Monks & Lajoux, 2011).
To settle on this company, I had to look at the following figures which were able to reflect the nature of business in the Group.
| 2012 | 2011 | 2010 | 2009 | 2008 | |
| Customer | |||||
| Total customers (millions)2 | 11.8 | 11.5 | 11.3 | 10.6 | 6.9 |
| Total online customers – active registrations (millions)3 | 4.0 | 3.7 | 3.4 | 4.3 | 3.3 |
| Number of points of bank representation | 1,538 | 1,532 | 1,517 | 1,491 | 1,089 |
| Number of ATMs | 3,639 | 3,544 | 3,625 | 3,540 | 2,285 |
The increase in customers, ATMs and bank appearances as shown above encouraged me more to invest in the company.
Westpac Group
Balance Sheet
As at September 2012
| 2012 | 2011 | 2010 | 2009 | 2008 | |
| Loans | 514,445 | 496,609 | 477,655 | 463,459 | 313,545 |
| Other assets | 160,520 | 173,619 | 140,622 | 126,128 | 126,131 |
| Total assets | 674,965 | 670,228 | 618,277 | 589,587 | 439,676 |
| Deposits | 394,991 | 370,278 | 337,385 | 329,456 | 233,730 |
| Debt issues and acceptances | 147,847 | 165,931 | 150,971 | 133,024 | 100,369 |
| Loan capital | 9,537 | 8,173 | 9,632 | 11,138 | 8,718 |
| Other liabilities | 76,371 | 82,038 | 80,171 | 79,398 | 77,388 |
| Total liabilities | 628,746 | 626,420 | 578,159 | 553,016 | 420,205 |
From the balance sheet above, the increase in assets from the year 2008 up to date encouraged me to invest in the company.
References
Analoui, F. & Karami, A. (2003). Strategic Management in Small and Medium Enterprises. London: Thomson Learning.
Longenecker, J. G. (2009). Business management: Launching and growing new ventures. Toronto: Nelson Education.
Monks, A. & Lajoux, R. (2011). Corporate Valuation for Portfolio Investment: Analyzing Assets, Earnings, John Wiley & Sons.
Moyer, C., McGuigan, R., & Kretlow, J. (2009). Contemporary financial management. Mason, OH: South-Western/Cengage Learning.
Nelson, D. L., & Quick, J. C. (2008). Understanding organizational behavior. Mason, OH, USA: Thomson/South-Western.
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