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Principals of Financial Markets Group Assignment

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Introduction

 

The principles of financial markets help to facilitate the recording, settlement, and clearing of financial and monetary transactions. This helps in strengthening the industries and also helps to forecast the financial stability of the companies under the same industry. The chosen companies fall under the same industry. The Cochlear limited company and CSL limited company falls under the healthcare industry. If the companies are not managed properly, it can pose remarkable risks to the system of finance. Although the companies performed well throughout the crisis period related to finance which happened recently. The market related to finance plays vital role in the development of the economy of the country. For economy's general health, application of principles of the financial market is extremely vital for operating under a proper business cycle both the companies required to apply the principles of the financial market. The inflation rate and the GDP of the country, under which both the companies are listed, will impact the functioning of the activities of the business.

Top down analysis

Analyzing the overall economic environment of both the companies:

 

Cochlear is a growing company. There was 12 % growth in profit for first half of the year.

The Cochlear limited company makes considerable efforts for reducing waste and the use of electricity. This company ensures the recycling, reuse of waste products. Cochlear limited company manufactures designs and supplies the Hybrid electro-acoustic implant, Baha bone conduction implant, and Nucleus cochlear implant.

CSL limited company performs well under the factors related to protection of the consumer, changes in tax legislation and insurance mandates. According to Fang et al. (2015, p.160), CSL limited company is considered as the leader in global biotech. CSL limited company manufactures drugs that covers a third of the market. As exposed collectively, CSL net worth presently is tens of billions. The CSL limited company is the largest manufacturer of drugs under healthcare industry to recover many patients suffering from heart attack all over the globe.

Considering how changes in forecasting in economic fundamentals will impact on company’s performance in the industry:

 

Changes in forecasting in economic fundamentals have impacted highly on both the companies operating in the same industry. The cycle of business in which the company operates indicates the changes in forecasting economic fundamentals. The major investment areas of the companies are impacted by economic fundamentals such as inflation rate and interest rate. The interest rate which is 1.5 % in Australia also impacts the performance of the companies. The inflation rate of the country as compared to the previous year is 1.97 % which influences the performance of the companies under the same industry. The various indicators and stages in business such as the GDP growth rate is also an economic fundamental which will impact the company’s performance under the same industry. According to Jones et al. (2015, p.1), the downturn in economy and recession may affect both the companies in the same industry. Amending the forecast and compensating the alteration of possible changes is important to avoid the potential problems related to the flow of cash of the companies.

Demonstrating the current interest rate of both the companies:

 

The current interest rate of CSL limited company is 5.3% whereas the current interest rate of Cochlear Limited Company is 4 %. Therefore, it indicates that Cochlear limited company has a lower rate of interest as compared to CSL limited company. According to Montes et al. (2017, p.26), Cochlear limited company having a lower rate of interest stimulates the growth of economy better than CSL limited company.  The lower rate of interest of Cochlear Company makes it easier and cheaper to borrow money for development of its business activities. On the other hand, the CSL limited company having a slightly higher rate of interest as compared to Cochlear will not be able to borrow money in a cheaper way.

Demonstrating the current value of the $AUD of both the companies:

 

The current value of $AUD of Cochlear limited company is $164.25 and the current value of $AUD of CSL limited company is $159.54. The difference between the value of the $AUD of both the companies under the same industry has been demonstrated.  Both the companies listed under the American Stock Exchange (ASX) shows the unconnected value of $AUD. The difference in the value of $AUD of both the companies under same industry is $4.71.

Current GDP:

 

The current GDP of the country represents 1.94 % of the total economy of the world. The current GDP growth of Australia amounted to $1.69 trillion. The GDP growth rate of the country will impact the performance of both the companies under the same industry.

Demonstrating the inflation rate:

 

The inflation rate of Australia, under which the Cochlear company and CSL Company is listed, has an inflation rate of 1.97%. This inflation rate of the country would affect the performance level of the countries which operates in the same industry.

 The economy in which the business cycle is currently operating in:

The business cycle under which both Cochlear limited company and CSL limited company operates under the industry that manufactures equipment related to health care and provide or supply services related to health care. According to Eshraghi et al. (2017, p.315), the companies operate under the business cycle which focuses on distributing facilities related to health care. The cycle of business, in which both the companies operates under the same industry, involves development, marketing, and researching of biotechnology and pharmaceutical products. The companies also apply the principle of the financial market under the cycle of business in which it operates.

Bottom-up Analysis

The current financial status of both Cochlear and CSL limited company is in a good position. By preparing the balance of both the companies for two consecutive years it has been analyzed that the total assets value of both the companies differs to a great extent despite falling under the same industry. With the help of balance sheet, the noncurrent liabilities and current liabilities of both the companies have been analyzed. After calculating the total liabilities it has been analyzed that the total liabilities of Cochlear company for two years is $1101518 and of CSL limited company is $10954.4. According to Chubb et al. (2017, p.2360), the difference in the liabilities of both the companies is also observed in the balance of the companies. Under the current asset calculation both the companies, cash and cash equivalents, trade and other receivables, current tax assets and many other items have been calculated. Under the noncurrent assets intangible assets, property, plant equipment and other items have been calculated. The current assets and current liabilities of the companies under the same industry have been analyzed to determine the total assets of both the companies. The current liabilities and the noncurrent liabilities of the company have also been analyzed for both the companies to determine the total liabilities of the companies. Lastly, by preparing the balance sheet the net assets of the companies and the total equity of both the companies have been analyzed which shows the financial situation of both the companies.  

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