Advanced Business Finance - Essay Example

? Advanced Business Finance Introduction Using a notional ?100,000 to trade in the UK stock exchange market, the following is an analysis of buying and selling shares in 888 Holdings Plc and Vodafone Plc. These two firms are chosen for the trading given their continuous growth and better performance in terms of profitability and share value. There is no doubt that trading in shares of 888 Holdings and Vodafone public companies will yield a percentage profit that beats the FTSE All-share index. Other than conducting an analysis on the trading, this paper provides a critical diary on the trading as well as the significance of the concepts learnt in this course. Trading Activities Buying of Shares with the notional ?100,000 888 Holdings PLC (888.L) ?31.25 as at September 30, 2011 11:07 Prev Close: 32.75 Open: 32.25 Bid: 35.50 Ask: 36.00 1y Target Est: 1.05 Beta: N/A Next Earnings Date: N/A Purchase cost ?54,000.00 1,500 shares times the ask price of ?36.00 per share. Stamp Duty ?270.00 ?32,750 times 0.005 (Note: 0.005 = 0.5%) Brokers commission ?10.00 It is ?10.00 whatever the size of the trade. Total ?54,280.00 Shares of 888 Holdings Plc seemed to be very lucrative hence the desire to buy them. What’s more, there has been an increasing trend in the value of shares of 888 Holdings Plc, which made it even more lucrative. Vodafone Group PLC (VOD.L) ?166.25 as at September 30, 2011 Prev Close: 166.25 Open: 167.15 Bid: 168.30 Ask: 168.35 1y Target Est: 199.14 Beta: N/A Next Earnings Date: N/A Purchase cost ?45,454.50 270 shares times the ask price of ?168.35 per share. Stamp Duty ?227.27 ?13,300 times 0.005 (Note: 0.005 = 0.5%) Brokers commission ?10.00 It is ?10.00 whatever the size of the trade. Total ?45,691.77 Despite recent drop in the value of shares, Vodafone Plc shares seemed attractive to invest in given the status of the company. The company has grown considerable thus proving that there is possibility of future prospects. What’s more, there were indications that the firm’s share is very attractive in the market hence trading on the shares may be very easy. The total amount invested in the two firms is given by 1,500 shares of 888 Holdings Plc ?54,280.00 270 shares of Vodafone Plc ?45,691.77 Total ?99,971.77 Selling of Shares 888 Holdings PLC (888.L) ?72.00 3.25(4.73%) 11:07 (April 16, 2012) Prev Close: 68.75 Open: 68.25 Bid: 71.50 Ask: 72.00 1y Target Est: 1.05 Beta: N/A Next Earnings Date: N/A Selling Revenue ?107,250.00 1500 shares times the ask price of ?71.50 per share. Brokers commission ?10.00 It is ?10.00 whatever the size of the trade. Total ?107,240.00 Vodafone Group PLC (VOD.L) 71.54 2.09(1.23%) 11:12AM (April 16, 2012) Prev Close: 169.45 Open: 169.35 Bid: 171.50 Ask: 171.55 1y Target Est: 199.14 Beta: N/A Next Earnings Date: N/A Purchase cost ?46,305.00 270 shares times the ask price of ?171.50 per share. Brokers commission ?10.00 It is ?10.00 whatever the size of the trade. Total ?46,295.00 Total Revenue obtained from selling the shares 1,500 shares of 888 Holdings Plc ?107,240.00 270 shares of Vodafone Plc ?46,295.00 Total ?153,535.00 Percentage Profit from the Trading * 100 = 53.53% FTSE All-Share index is 5,300 on September 31, 2011 and 5,678 on April 16, 2012 at 1400 hours. = 7.13% Therefore, on the basis of the above calculations on Percentage profit and FTSE All-share index, there is no doubt that the trading was able to beat the FTSE All-share index. Critical diary Trading within the stock exchange market is a tricky and challenging aspect of commerce. Every individual involved in investment or trading within the stock exchange market has to be equipped with adequate and up to date information on the performance of the various stocks or shares within the stock exchange market. One way of attaining such adequate and up to date information is extensive reading and listening to business news. Consequently, before engaging in this trade, I read many articles, journals, listened to and watched much business news. From the articles, journals, internet sources, and news, it was possible to understand various public limited companies and their performance within the stock exchange market. The first few weeks therefore were dedicated to reading articles, journals, and listening or watching news. Specific articles that formed part of my research included the weekend edition of the Financial Times. The reading cut across business, politics, and markets. Even though one may wonder why the need to read politics, the truth is that stock markets are highly affected by political environment. Political environment variables may negatively or positively affect operations of stock exchange market either through affecting exchange rates or the overall operations of business entities within the country in question. In addition, the weekend edition of Financial Times ensured that I obtained updated information for Vodafone Plc and the 888 Holdings Plc. Such information was very useful in ensuring that right decisions are made with respect to investments. The weekend edition has a good round up of the week’s main news On the other hand, watching daily news was another way of obtaining information regarding performance of stock exchange market. Business news usually has updated information on performance of stock exchange market with the gainers and losers. Such information provides light to investors in respect to the kind of trading that they should engage in with a view of making huge profits. It should be noted that stock exchange market is highly speculative as no investor has perfect information on when the shares of a given firm is likely to rise or fall. Most investors who trade in the stock exchange market in most cases speculate a lot in order to make the best trading. However, with adequate and updated information an investor within the stock exchange market may find it easier to understand the trend of shares of different firms hence the need to watch daily news. The internet was the last source visited in a bid to finding adequate and up to date information not only on the stock market but also on the preferred firms. The internet is a powerful tool that contains vastly adequate and up to date information regarding stock exchange market as well as the various listed firms and their shares. The main internet source applied in this trading was Yahoo Finance. The UK Yahoo Finance provided information on Vodafone and 888 Holdings firms, which proved to be very useful in making successful trading. The trading is termed successful in this case since the percentage profit has beaten the FTSE All-share index. Beating FTSE All-share index requires wise choice of stocks as in the case of this trading, which is only possible through extensive reading. Trading within stock exchange market is challenging given the aspect of speculation. Every investor within the stock exchange market speculates the rise and fall of shares hence the buying and selling of the same. An investor who holds shares of a given firm for instance, will observe the firm’s performance in the recent past as well as the business environment. In the even that the investor speculates that the share prices will rise, the shares are not sold until the prices rise. On the other hand, if the investor speculates a decreased in the prices of the shares then there is a high possibility of selling them to avoid selling them later when the prices are low thereby making loss. All these activities require that investors have adequate and up to date information regarding operations of stock exchange market. Other than the idea of speculations, investors within the stock exchange must understand the impact of different environmental variables on trading activities within the market. Environmental variables, either macro or micro significantly affects trading activities within the stock exchange market. For instance, political environmental variables may affect trading activities negatively or positively. Positive effects or impacts will arise from political stability and serenity whereas negative impacts or effects will arise from political instability. Economic and legal environmental factors also affect significantly trading activities within a stock exchange market. Stock exchange markets rely heavily on the economic viability and prosperity of nations. A nation experiencing low, negative, or stunted economic growth may not attract investors hence leading to poor performance of the stock exchange. These are fundamental factors that were considered before trading activities were taken into considerations. Buying the shares of 888 Holdings Plc was induced and motivated by the fact that during that year the firm had attained a high performance in terms of growth, profitability, and share value. The share value of 888 Holdings rose to approximately ?32, which was one of the highest recorded during that period. What’s more, in terms of gainers and losers, 888 Holdings Plc was the highest gainer during that time and this motivated me into buying shares of the firm with hopes and predictions that share values will continue to increase. Being the highest gainer meant that 888 Holdings had employed effective strategies to enhance their operations and performance hence attaining the stated profitability (Uk.finance.yahoo.com, 2012a). On the other hand, shares of Vodafone Plc were traded on given the consistent performance the firm has had over the past few years. Vodafone Plc is one of the firms considered to be very stable within the stock market Uk.finance.yahoo.com (2012b). Investing or trading on shares of Vodafone therefore is one way of being sure that there will be returns on the investments. Vodafone’s consistent performance is seen in its strategic positioning as well as the achievements the business has had over the past few years. Indeed, strategically it is wiser and better to trade in Vodafone shares given its consistency and stability within the stock market. Notably, despite the great performance exhibited by 888 Holdings Plc, it would have been very risky to invest all the funds in the same company. Diversification of portfolio is an important aspect of investment that investors must carry along while engaging in the same Following through the trading activities, it is obvious that there was a percentage profit which beat the FTSE All-share index as illustrated in the above formula. Beating FTSE All-share index require effective and diversified investment portfolio as illustrated in this paper. Therefore, it is undeniable that those investors who engage in diversified and effective portfolios always end up obtaining high percentage profit. Investment Strategies While engaging in the trading, the motive was to obtain profitability and not to accumulate wealth. In this case, shares are bought when their prices are low and sold when their prices increase in order to achieve profitability. Even though shares are form or long-term investment, the intention makes them be middle or short-term investment. For instance, in this case, shares were used as middle-term investment portfolios given that they were used to make profits and nothing more. Indeed, trading in the stock exchange market has upgraded my CV given that I have knowledge and experience in buying and selling of shares. Reference Uk.finance.yahoo.com (2012a). 888 Holdings Plc. Retrieved on April 16, 2012 from http://uk.finance.yahoo.com/echarts?s=888.L#symbol=888.l;range=20110414,20120416;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined; Uk.finance.yahoo.com (2012b). Vodafone Plc. Retrieved on April 16, 2012 from http://uk.finance.yahoo.com/q?s=VOD.L&ql=0 Read More