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HC2091: Finance for Business Assignment

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HC2091: Finance for Business Assignment

 HC2091: Finance for Business Assignment

Introduction

This report will be based on two selected companies and the names of the two selected companies are Prime Assets Ltd and Platinum Ltd.  First of all , both the companies will be described on the basis of its core activities , competitive advantages, the market and the industry in which its operates and the background of the companies. Therefore, giving an overall overview of the both companies. Then the financial performances of the both companies will be checked by using five types of ratios and they are Short term solvency ratio, Financial Leverage ratios, Asset utilization ratios, Profitability ratios and Market value ratios. This will give an idea about the financial position of the both companies. The share price movement of the two companies will also be checked to understand the volatility of the shares of the two selected companies in the market. In addition, the share price of the two companies will be calculated using Constant Dividend Growth Rate model and compared with present share value of the two companies in the market to determine whether they are undervalued or overvalued. In the conclusion about the finding of the report and the recommendation based on those finding will be given.

 

Description of the two companies

The prime assets ltd is an accounting, advisory and wealth management firm whose main clients are the business or cooperates. Its business model operates under direct business to customer model ( Primefinancial.com.au., 2018).  The Platinum Ltd is an investment company. The main goal of the company is to have capital growth in the long term by using investment in unlevered securities to give a good rate of return to its investor. It invests in a different sector of a market like healthcare, information technology and many other sectors like these ( Annualreports.com., 2018).

1.2 Core Activities

The core activities of Prime Assets Ltd are business advisory, wealth management. It involves the financial planning of the business owner and the asset protection of the business ( Primefinancial.com.au., 2018). Capital management advisory and integrated accounting services to its clients and the core activities of Platinum Ltd is Investment in unlevered securities in different markets like Australia, Canada, China and many other markets like these ( Annualreports.com., 2018).

1.3 Market scenario in which they operate

Prime asset Ltd operates in financial or specifically the wealth management of the company whose main clients are businesses and business owners in the Australian market ( Primefinancial.com.au., 2018).

Platinum Ltd. operates in financial or investment sector of Australia by investing in different securities markets like China, Australia and many other countries like these according to the market situation of these markets( Platinum.com.au. ,2018). This sector has a growth of around 16%.

1.4 competitive advantages

 The main competitive advantage of Prime Asset Ltd is the high use of digitalization to improve the overall experiences of its customers. Therefore, increasing the customer satisfaction of the company.

Discussion

2.1 Short-term solvency (Liquidity ratios)

 Three liquidity ratios of both companies have been calculated in this report. The first liquidity ratio calculated in this report is quick ratio which calculated the ability of a company to arrange cash in short time in a time of emergency (Nobanee and Al Hajjar, 2014).  The quick ratio of prime assets ltd is 1.01 and .84 in the year 2016 and 2017 respectively. The quick ratio of platinum ltd is 13.88 and 12.07 in the year 2016 and 2017 respectively. Therefore, the position of Platinum Ltd is better than prime in this aspect. The current ratio of a company is the ratio of the current assets and current liabilities of a company.  The current ratio of Prime Assets Ltd. is 1.51 and 1.37 in 2016 and 2017 respectively. The current ratio of Platinum Ltd. is 13.88 and 12.07   in 2016 and 2017 respectively.  Therefore, the current ratio of Platinum is in a better position.

The absolute liquidity ratios of the two companies are the proportion of the cash and cash equivalent in the company in comparison to the current liabilities of the company.  The absolute liquidity ratio of prime is .45 and .12 in 2016 and 2017 respectively. The absolute liquidity ratio of platinum is 13.55 and 11.35 in 2016 and 2017 respectively. According to this, it can be estimated their lot inefficiency in the cash management of Platinum as a company does not need to keep such large amount of cash or cash equivalent with them and rather make a business model which increase the efficiency of cash resources of the company. Therefore, the Prime is in a better position in this ratio but overall the platinum position is better in liquidity ratio.

 2.2 Profitability ratios

Two profitability ratios had been calculated of the two companies. The first ratio is the operating profit margin in which the profit margin before interest and tax expense of a company is calculated (Heikal et al.,2014). The operating profit margin of prime is .65 and .53 in 2016 and 2017. The operating profit margin is 1.32 and .92 in 2016 and 2017 respectively. The net profit margin of a company is the percent of the profit of a company before tax and interest expense of the company. The net profit margin of prime is .51 and .4 in 2016 and 2017 respectively. The platinum net profit margin is .92 and .65 in 2016 and 2017 respectively. Therefore, it can be observed that the profitability of Platinum is better than Prime.

2.3 Long-term solvency (Financial Leverage ratios)

Three ratios have been discussed for the long-term solvency of the two selected companies. The first ratio is debt ratio in which the amount of debt in a company is calculated (Pescatori et al., 2014).The debt ratio of prime is .13 and .25 in 2016 and 2017 and the debt ratio of platinum is .03 and .06 in 2016 and 2017 respectively. The debt to equity ratio is the ratio of the total amount of debt and equity in a company. The debt to equity ratio of prime is .14 and .33 in 2016 and 2017. The debt to equity of platinum is .03 and .06 in 2016 and 2017. The equity ratio is the proportion of equity in the total amount invested in the company ( Goh et al., 2017). The equity ratio of prime is .87 and .75 and the equity ratio of platinum is .97 and .94 in 2016 and 2017. Therefore, from the above ratio, it can be observed that the long-term solvency of the platinum is better as it has more proportion of equity in its capital structure. 

2.4 Asset utilization (efficiency or turnover ratios)

Three liquidity ratios of both companies have been calculated in this report. The first liquidity ratio calculated in this report is quick ratio which calculated the ability of a company to arrange cash in short time in a time of emergency (Nobanee and Al Hajjar, 2014).  The quick ratio of prime assets ltd is 1.01 and .84 in the year 2016 and 2017 respectively. The quick ratio of platinum ltd is 13.88 and 12.07 in the year 2016 and 2017 respectively. Therefore, the position of Platinum Ltd is better than prime in this aspect. The current ratio of a company is the ratio of the current assets and current liabilities of a company.  The current ratio of Prime Assets Ltd. is 1.51 and 1.37 in 2016 and 2017 respectively. The current ratio of Platinum Ltd. is 13.88 and 12.07   in 2016 and 2017 respectively.  Therefore, the current ratio of Platinum is in a better position.

The absolute liquidity ratios of the two companies are the proportion of the cash and cash equivalent in the company in comparison to the current liabilities of the company.  The absolute liquidity ratio of prime is .45 and .12 in 2016 and 2017 respectively. The absolute liquidity ratio of platinum is 13.55 and 11.35 in 2016 and 2017 respectively. According to this, it can be estimated their lot inefficiency in the cash management of Platinum as a company does not need to keep such large amount of cash or cash equivalent with them and rather make a business model which increase the efficiency of cash resources of the company. Therefore, the Prime is in a better position in this ratio but overall the platinum position is better in liquidity ratio.

 

 



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