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Income statement f'000s Balance Sheet E'000s Revenue 113,100 Non current assets Cost of sales (65,200) Property & equipment 15,400 Intangible assets 2,700 Gross profit 47,900 18,100 Current assets Selling / distribution costs (20,000) Inventories 47,300 Administrative expenses (4,500) Cash & cash equivalents 24,200 71,500 Operating profit 23,400 Current liabilities Finance costs (300) Payables 24,000 Tax liabilities 2,400 Profit before tax 23,100 26,400 Tax payable (5,200) Net current assets 45,100 Profit for the year 17,900 Non current liabilities Pension obligations 8,400 Dividend (6,500) Net assets 54.800 There are 77 million shares in issue and the share price is $4.40. (i) Calculate the following for Company X: Return on Capital Employed . Price Earnings ratio . Dividend Cover Gross Dividend Yield Working Capital [5] (ii) Describe how the metrics in part (i) can be used to compare possible investments and their potential limitations. [6] (Hii) Suggest, with reasons, the key additional factors that you would investigate in order to determine whether Company X is a worthwhile investment. [6] [Total 17]A private investor has allocated a proportion of his wealth to an investment manager who specialises in running equity portfolios. Over the last two years the flagship equity fund in which the investor is invested has underperformed its benchmark by more than 10% each year. Overall, the fund has lost 70% of its funds under management due to investor withdrawals. The major contributor to the underperformance is the portfolio manager's heavily overweight holding in the stock of a company which has had several profit warnings. The general market view is that the company will seek bankruptcy protection and is very unlikely to recover. (i) Describe, for each of parts (a) and (b) below, TWO potential behaviours being exhibited by: (a) the portfolio manager in continuing to hold an overweight position in the underperforming stock. (b) the investor in continuing to hold units in the fund despite the underperformance of the fund. [8] To try and rebuild the asset base the investment manager has employed a new head of sales to try and attract new clients. When discussing the sales strategy the head of sales recommends that they must always be the first presenter in a competitive sales situation. (ii) State the behaviour the head of sales believes consumers follow when presented with multiple options. [2] (iii) Assess whether the head of sales' strategy is sensible, or whether alternatives to presenting first would be more effective. [4] [Total 14]The market price of a certain share is being modelled as a geometric Brownian motion. The price S, at time / 20 satisfies the equation: SL = UI + OB, loge So where {B,,/ 2 0; is a standard Brownian motion and / and o are constants. (i) Show that the stochastic differential dS, can be written in the form: dS, = C dB, + cydt , where o and c, are constants you should specify. [3] (ii) Derive expressions for E[S, ] and var[S,]. [4] (iii) Derive expressions for cov[S,, , S,, ] and ELS,, IS,, ] where 0
