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Share price

How To Current Assignment Aims To Evaluate?

The current assignment aims to evaluate the share price history and trading volumes from a provided list of five organisations. In this case, Slater and Gordon Limited (SGH) has been selected as the organisation, in which the reasons for changes in the share price of the organisation have been depicted along with the performance of the organisation over the last five years. SGH is one of the biggest consumer law firms in Australia in terms of revenue. One of its significant achievements includes the acquisition of Quindell, which is a division of professional services, for £637 million in 2015 (Gordon 2017). 

The second portion of the assignment focuses on the market capitalisation of the organisation with the help of Capital Asset Pricing Model (CAPM). In addition, the financing strategy of SGH has been evaluated along with identification of the impending risks. Finally, the assignment sheds light on recommending the investor about investing $10,000 savings in the organisation.

                                                            Figure 1: Movement of share price of Slater and Gordon Limited

                                                                             (Source: Reuters Australia 2017)

The above figure helps in depicting the movement of share price of Slater and Gordon Limited for five years. Moreover, there is considerable rise in share price of the organisation during 2012. However, after touching the level of price at 8, there is decline in level of price at 0.09. Such sharp fall in shares has occurred after it has announced the annual report of the accounting years. However, the organisation has experienced loss in 2016, which has resulted in fall of share price (Hinchey and Goodloe 2015). The share price decline has been due to strong selling that the banks have carried out for obtaining their loans from SGH. Such discounted prices offered on the part of the bank on the share price of the organisation have compelled its stock price to decline. According to Bale (2015), the movement of share price primarily displays the financial situation of an organisation assumed on the part of the investors.

The fall in the entire share price of SGH has been due to the following reasons:

  • The books of SGH have been found as erroneous resulting in sharp fall in the overall share price of the organisation. The ASIC has carried out a routine assessment of the books of accounts of SGH due to suspicions.
  • Wayne Brown, the Chief Financial Officer of the organisation, has parted its ways with SGH after serving for 12 years. The departure of the personnel has brought a negative impact on the organisation.
  • By the end of 2015, the slower earnings of the organisation have been announced in the opening of the year 2016. Such announcement has resulted in decline in stock prices; however, confirmation has been received at a later stage in future about the increase in earnings.
  • The organisation was removed from ASX 100 due to constant decline in share price of the organisation.
  • One of the leading law organisations, Maurice Blackburn, has initiated a class action against SGH.
  • SGH has acquired Quindell worth $1.3 billion. The bought wing has been investigated to be associated with fraudulent activities, which has been directed in restating its accounts in the past (Cannonier, Chen and Smolira 2016).
  • SGH has modified its accounts twice in 2014 and 2015, the guidance related to earnings has fallen and hence, the standards of accounting are modified altogether. Such modifications have contributed significantly through $2billion push in its stock value.

                                                                                    Figure 2: Movement of price volume of Slater and Gordon Limited

                                                                                                   (Source: Reuters Australia 2017)

Market capitalisation

The entire push in volume could be observed in 2016, in which majority of the shareholders depicted for selling its market shares. Moreover, after announcing the fund conducted on the part of the organisation, the volume of share price has increased rapidly, which implies that the falling stock price quoted on the part of the organisation over the specific timeframe (Besley and Brigham 2013). Thus, with help of volume pertaining to stock price, the entire price action trend of SGH has been identified in an effective fashion.

Growth

Year

Dividend

Growth

2013

0.07

2014

0.08

14.29%

2015

0.09m

12.50%

Current growth rate

12.50%

Current Dividend

0.09

Risk free rate

2.68%

S&P 200

SGH

Average

0.03556184%

-0.38427611%

Covariance

0.000101298

std (S&P200)

0.0070

beta

2.085870272

Cost of equity

0.035557275

DI

0.10125

Theoretical Stock Price

3.54

Actual Stock Price

0.09

Table 1: Stock valuation of Slater and Gordon Limited

(Source: As created by author)

According to the above table, the theoretical stock price of Slater and Gordon has been found, which would help in detecting the under vale or value condition of the organisation. The existing theoretical stock price of SGH has been obtained at $3.54, while the actual stock price is found as $0.09. This denotes that the stock position of the organisation in the ASX market is undervalued (Gullifer and Payne 2015). As a result, it implies that the theoretical stock price of SGH is comparatively higher compared to the actual stock price of the organisation. It has been observed that the market capitalisation of SGH has been $79,285,500 in 2015 (Gordon 2017). Such market capitalisation has lead to falling stock price of SGH by 2016.

SGH in 2013 has overall debt balance of $683.3 million; however, the overall assets are obtained at $305.1 million. Moreover, the organisation has issued 1,116,048,000 equity shares. Furthermore, the organisation has made issuance of equity shares and normal shares, which is the sole instrument to accumulate funds that is equity financing (Ferran and Ho 2014).

                                                                       Figure 3: Financing agreements of Slater and Gordon Limited

                                                                                                    (Source: Gordon 2017)

The above-depicted figure primarily represents the pertinent debts and loans, which the organisation has accumulated in the accounting year of 2016. The collection of bad debt is carried out primarily on the part of the bank for assuring greater availability of financing in supporting its activities. The organisation has utilised short-term as well as long-term borrowings for extending support to the activities along with minimisation of fund shortage. However, Petty et al. (2015) argued that greater loan collections might affect the financial condition of the organisation in a negative fashion.

From the above evaluation, it is suggested to the investor to abstain from investing in the shares of Slater and Gordon Limited. This is because the entire stock of the organisation has minimised above the level of 9 cents and it might not offer any type of return from investment. The entire share price of the organisation has decreased because of the loss incurred on the part of the organisation in 2016. In addition, the organisation has not paid any dividend in 2016 because it has incurred heavy losses in the specific year.

Conclusion:

In accordance with the above discussion, it has been evaluated that the organisation has experienced loss in 2016, which has resulted in fall of share price. The share price decline has been due to strong selling that the banks have carried out for obtaining their loans from SGH. After announcing the fund conducted on the part of the organisation, the volume of share price has increased rapidly, which implies that the falling stock price quoted on the part of the organisation over the specific timeframe The organisation has utilised short-term as well as long-term borrowings for extending support to the activities along with minimisation of fund shortage. It is suggested to the investor to abstain from investing in the shares of Slater and Gordon Limited. This is because the entire stock of the organisation has minimised above the level of 9 cents and it might not offer any type of return from investment.

References:

Bale, J., 2015. Management Dilemmas Lori Mitchell Colorado State University Global Campus Principles of Finance Fin. 500. Management.

Besley, S. and Brigham, E.F., 2013. Principles of finance. Cengage Learning.

Cannonier, C., Chen, D. and Smolira, J., 2016. The effect of a homework grade cap in an introductory finance class. Journal of Education for Business, 91(2), pp.95-100.

Ferran, E. and Ho, L.C., 2014. Principles of corporate finance law. Oxford University Press.

Gordon, S. (2017). Homepage. [online] Slatergordon.com.au. Available at: https://www.slatergordon.com.au/ [Accessed 10 May 2017].

Gullifer, L. and Payne, J., 2015. Corporate finance law: principles and policy. Bloomsbury Publishing.

Hillier, D., Clacher, I., Ross, S., Westerfield, R. and Jordan, B., 2014. Fundamentals of corporate finance. McGraw Hill.

Hinchey, P. and Goodloe, J.M., 2015. Principles of finance. Emergency Medical Services: Clinical Practice and Systems Oversight, Second Edition, pp.60-68.

Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D. and Burrow, M., 2015. Financial management: Principles and applications. Pearson Higher Education AU.

Reuters Australia. (2017). ${Instrument_CompanyName} stock quote, ${Instrument_CompanyName} company overview | Reuters Australia. [online] Available at: https://au.reuters.com/finance/stocks/overview?symbol=SGH.AX [Accessed 9 May 2017]

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