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2 pages/β‰ˆ550 words
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APA
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Accounting, Finance, SPSS
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English (U.S.)
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Investment Thesis and Portfolio Assigned Stocks: Sigma Healthcare Ltd

Essay Instructions:

In order to issue a recommendation in relation to the stock analysed, the group will have to estimate the fair stock value and compare it to the corresponding market price. For this task, the discounted cash flow (DCF) methodology discussed in Module 2 will have to be employed using a 10-year horizon and with a terminal value calculated according to the following methods: - Constant growth model - Valuation by multiples (P/B and P/E ratios) In applying the DCF methodology, a table containing the estimated free cash flows (FCFs) will have to be generated and, in particular, assumptions will need to be made in relation to the company’s profitability (ROA) and the growth rate of both (i) assets and (ii) earnings per share (EPS). Estimates of the variables necessary to apply the DCF methodology will need to be generated for three different scenarios: optimistic, neutral, and pessimistic. Each of these scenarios will lead to a specific stock price; based on them, the group should provide a sensitivity analysis explaining the changes in prices vis a vis changes in the assumptions. The group will need to provide a narrative where the assumptions made in each scenario are internally consistent and plausible relative to the scenario.


Use 1.5 line spacing and size 12 Arial or Calibri font; margins should be normal sized
- Always put yourself in the shoes of the reader
- Proofread your report before submitting it on Canvas

Essay Sample Content Preview:

WRITTEN REPORT FOR SIGMA HEALTHCARE LTD
Author’s name:
Institutional Affiliation:
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Section 7: Investment Thesis.
Based on the three scenarios discussed in section 6, this section provides recommendations for whether or not the investment fund should add the assigned stock to the portfolio.
The WACC formula determines and analyses the business's potential benefits to be successful before acquiring or making another investment. Lower WACC indicates a healthy business, attracting more investors at a lower cost. On the other hand, a higher WACC implies that a business has a riskier and higher return compensator. WACC comprises return on asset (ROA) and discounted rate formula for long-term investment as expressed in section 6. First, ROA is used to determine the business's asset performance. It is calculated by dividing the total net income by the total asset. A rising ROA indicates the company's good performance at increasing its profits with each investment made. By contrast, falling ROA indicates the company’s over-investment in assets failing to produce revenue growth. According to Morningstar historical data, average ROA figures are 4.72%, 5.56%, 6.72%, 4.72%, -4.49%, 1.09% and 5.17% for a different period. This data reflects the company’s revenue growth possibility, having only two out of six periods with less than 4% ROA.
Secondly, taking discounted rates helps describe the interest percentage that an investment may yield over its lifetime, for example, for the r=3.89%, g=5.56% for five years. g=1.09% for another period of five years number of expected shares equals 1059.3 million, having total liabilities=670.71 million. Furtherly the hurdle rate at the same time has a constant growth model of price per share=$2.85, which explains the business's abilit...
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