Sample Assignment Research on Financial market and Capital Budgeting Analysis

Introduction:

The facts associated with the financial market of Australia can be understood with the help of this report. The report has taken the help of various financial institutions to display the varying perspectives of budding investors that are willing to make investments in other institutions. Investors play a vital role in heightening the institution's funds. The report will help to understand the three questions associated with financial management, and these questions help to understand the financial clauses that the institutions can utilize for enhancing their activities. The companies' working capabilities are enhanced by the increase of funds, and thus the institution's objectives can be acquired. The report also aids in understanding the regulations of the financial market of Australia that are generally imposed upon the Australian enlisted companies. The report will help to understand the processes and problems that are needed for enlisting in ASX. The Australian "financial advisory service registration" can also be understood with this report, and this further helps to understand the data needed in registrar (HARVEY, ALDRIDGE and COHN-URBACH, 2015). The report has finally assessed the threats and analyzed the project by taking the help of a case study. The complete data related to the institution's financial capabilities and the procedures for enlisting in the "Australian Stock Exchange" are provided in the report.

The enlisted companies can be identified with the aid of ASX, and this displays the companies' operations. The company's overall data are provided on the official website of ASX, and this aids in understanding the business capabilities of the company. Risk is an important feature in every business, and the company's capability to develop its operations can be defined by these risks. When the company gets updated in ASX, it helps them in seeking new investors so that the organization's activities can be expanded. The report contains the assessment of the four companies enlisted in ASX, and hence all the companies display their worth in doing their activities.

Part 1: Research conducted on the financial market of Australia

1.1. Comparing the four vital Financial Institutions

Particulars

Commercial Banks

Insurance Companies

Investment Banks

Investment Funds

Classification

Banks that operate for those individuals that desire to invest money based on the regulations set down by the central bank are termed as commercial banks (TURNER and NUGENT, 2015).

These banks prefer short-duration credit so that the market securities can be easily accessed

Insurance companies are those companies which help individuals to retrieve their damages and losses.

These companies operate only when individuals need them (Aph.gov.au., 2020). For instance: accident, disability, death, damage and other issues

Investment banks deny deportations and are known to help government, business houses and individuals to collect money (Rba.gov.au. 2020). These investment companies are termed investment funds from individuals or investors.

The capital supply that is generated from investors and applied in various funds like Hedge funds, mutual funds and revenue market funds are termed as investment funds, and this help to enhance the business operations.

Operational Market Sector

The operations of these banks are included within the banking sector, and individuals can save their income in it (Financialservices.royalcommission.gov.au. 2020)

These companies come under the insurance sector and prove helpful for the individuals as they can invest their salary (Financial services.royalcommission.gov.au., 2020)

This banking belongs to the sector of investment banking and provides investment opportunities to investors and individuals

These also belong to the sector of investment banking and defines the various funds which help individuals to make investments (Rba.gov.au. 2020).

Important business operations

The important business operation of these banks is providing advances and loans, bill discounting, overdraft facilities and several other activities. They help people save money in banks (Pwc.com.au. 2020)

The vital operation of these companies is investment and underwriting.

The main activity of these investment banks are: handling mergers, act as a financial adviser, acquisitions, and underwriting new stock matters

The main activity of these funds is developing the investment’s habit among people

The vital income sources

These banks generate income through interests that they earn from advances and loans and from handling government works (Nyasha and Odhiambo, 2020)

These companies generate income through investments and through underwriting income (Hannover-re.com., 2020)

These banks generate income through fees that they procure from financing, advising, gathering clients and different services (Rba.gov.au. 2020). The dividends that they procure from investment also become their income source

These funds generate income through further investments by larger companies and the fees that they collect from them like account fee, purchase fee, sales fee and several other investment charges

This can be explained through an example:

“National Australian Bank”: Commercial Bank

  1. NAB is the enlisted code of this bank
  2. The bank got enlisted on ASX in the year 1988, 14th October
  3. The bank’s present market cap is 29.01B
National Australian Bank key stock figures

Source: (Capital.nab.com.au. 2020)

  1. The current, complete share outstanding is calculated as 2.88 B
  2. The company's CEO is Ross McEwan, and the company's chairman is Philip Chroncian (nab.com.au., 2020)
  3. The company’s dividend graph is given below:
    company dividend graph
  4. 07.2020

“Macquaire Group”: Investment Bank

  1. MQS: ASE is the enlisted bank code
  2. The bank got enlisted on ASX on 30th of October,1990
  3. 49B is the company’s market cap
  4. The present net unresolved share is calculated at 338.55
  5. The company’s CEO is Shemarawikramanayake, and the company's chairman is Peter Warne (com. 2020)
  6. The company’s dividend graph is given below:
    Macquarie Group Limited Dividend Payment History
  7. 18.12.2019

“Agro Investments Limited”: Investment Funds

  1. ARG is the code of the company
  2. The company got enlisted under ASX in the year 2015, 3rd July
  3. Agro Investments Limited Investment Funds
  4. The company’s net unresolved share is unavailable
  5. The company CEO is Jason Beddow, and the chairman is Russel Allan Higgins
  6. The company’s dividend graph is provided underneath (org., 2020)
    company dividend graph is provided underneath
  7. 06.03.2020

“TAL Life Limited”: Insurance Company

  1. TAL is the enlisted bank code
  2. In 1996 the company got enlisted in ASX
  3. The company's present market cap is 30.679B.
    TAL Life Limited present market cap
  4. The present net unresolved share of the company is 384. 34 M
  5. The company CEO is Brett Clark, and the chairman is Duncan Boyle (Dai-ichi-life-hd.com., 2020)
  6. The company’s dividend graph is given below:
    TAL Life Limited dividend graph
  7. 04.2020

1.2 Assessing the three queries of Financial Management:

Capital budgeting is important because:

The company taken into consideration to understand capital budgeting is BHP (“Broken Hill Property Company Limited”). This is a prominent resource company dealing in the extraction of gas, oil and minerals and boasts of 72000 employees. As per the latest data of July 2019, a plan related to climatic investment has been announced by the company, and the estimates have been given as $400 million. This project is associated with a decrease in greenhouse gas by taking aid of leading technologies and quality solutions (Brokenhill.nsw.gov.au., 2020). The company has even stated the predicted outcome: there will be an expected 20% curtailment in the cost of energy.

BHP’s latest investment displays a strong capital structure, and it is operating for a long duration, thus competing with other companies. This has become possible as the company's capital structure is powerful. It should decrease its expenditure so that it can form a profitable situation (Brokenhill.nsw.gov.au., 2020). The assessment has, however, shown that the company is operating perfectly and investing in new projects so that the company's working capability is enhanced.

BHP has freshly invested in greenhouse gas which displays that the company's operating capital is managed in a proper manner. The company's efficacy associated with the liquidation of company debts is displayed through the operating capital. This requires large investments and can affect the company's operating capital, but the company made those investments after assessing the long duration objectives (Brokenhill.nsw.gov.au., 2020). The short duration difficulties are overlooked in this case.

Part 2: Searching the facts of the market regulations of Australia

2.1. Finding facts of enlisting on ASX

“Macquire Group” is the company that has been taken into consideration

  1. Benefits of being an enlisted company on ASX:
  1. The issues company confronts after being enlisted in ASX:
  1. The necessities for enlisting in ASX :
  1. The procedure for enlisting in ASX:
  1. The charges for enlisting in ASX are done depending on the annual fees and securities. This is then prorated as “first fiscal year”.

2.2. Finding the requirement facts for registering in the financial advisory:

A person is termed as a financial advisor if:

"FASEA" is the standard that is applicable to these advisors but the government has changed it, and the advisors are thereby provided relief for three of their licensing tenures.

Part 3. Evaluating the project and analyzing the threats:

3.1. Conducting sensitivity evaluation with the given data:

Investments

Equipment's

2000000

Working capital

600000

Total

2600000

General case study

Year

0

1

2

3

4

Sale units

350000

350000

350000

350000

Sales Price

22

22

22

22

less: per unit variable cost

11

11

11

11

Per unit contribution

11

11

11

11

Total contribution

3850000

3850000

3850000

3850000

Fixed cost

-350000

-350000

-350000

-350000

Depreciation

-450000

-450000

-450000

-450000

Net Profit prior to paying of tax

3050000

3050000

3050000

3050000

Tax @30%

-915000

-915000

-915000

-915000

Profit after paying of Tax

2135000

2135000

2135000

2135000

Add: Depreciation

450000

450000

450000

450000

Add: Operating capital

600000

Residual Value

200000

Free revenue Flow

-2600000

2585000

2585000

2585000

3385000

Discounting rate @ 10%

1

0.909091

0.826446

0.751315

0.683013

Discounted Cash Flows

-2600000

2350000

2136364

1942149

2312001

Total Present Value

-2600000

2136364

1765590

1459165

1579127

NPV

4340246

As regards the provided case scenario, one can conclude that the concerned company has the capability of selling 350000 units at $22 price, and the variable cost expended per unit will be $11. The project's NPV will then be $ 4340246. But if there is a decrease in the sales unit by 10%, it will impact the NPV and lower it to $ 365559. Again, if the product's sales price is lowered by 10% and the net units sold remains the same as the present case scenario, the NPV will definitely decrease. But the impact remains the same as in the case of decreasing sales. When variable cost is increased, functional cost increases and the free revenue flow decreases. Thus the sales can decrease by $ 6255597. Again, if there occurs 10%increase in fixed cost, the NPV can change to $ 6878005.

Conclusion:

Through this report, one can gain knowledge about some Australian enlisted companies that are performing great business. But understanding the manner in which they got enlisted in ASX is also important, and this report has stated the various commercial institutions along with numerous instances that help in comparing these companies based on market assessment. The company dividends display their future business worth, and these financial institutions prove beneficial for the country's economy because the customers form the habit of investing their personal income expecting better returns. The latter half of this report has even stated that the financial advisor's task is not easy, and the selection should be made based on proper licensing and qualification. Professional standards are stated, and this has helped to understand the operations of financial advisors, various products have been defined of which at least one should be possessed by the advisors. Project evasion and risk evaluation have helped to understand the types of risk that are involved in the specific project. These risks are determined based on the provided examples. Thus it can be concluded that this report has helped to understand the primary finances that can prove vital for the companies to get enlisted in ASX.

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