Investment Portfolio - Assignment Example

Portfolio Management for selected companies: Sharp, Jensen and Treynor Ratios Introduction Portfolio management is a fundamental pillar of every corporate entity. It determines how well the company fairs in the competitive market with respect to its investment performance over a predetermined period. In that light, financial analysts have devised three concepts of computing portfolio analysis including the Sharp, Jensen and Treynor rations (Sanwal, 2007). This paper seeks to determine the aforesaid ratios using the portfolios of six companies namely Dell, Microsoft Corp, General Electric, Ford, UPS and Wal-Matt.

Dell CorporationIn the first quarter Q1 of 2012FY, the NYSE analysis reported that Dell has an expected Return on Assets Ri of 7.6%, beta β = 1.33 and δ = 2.44. Conversely, the present Risk-Free Rate RFR provided by the US Treasury Bill has been fixed at 0.182% for the year 2012. Moreover, the prevailing market rate of return Rmt = 5.24% (NYSE, 2012). Thus; Sharp Ratio = = (0.076 - 0.00182) ÷2.44 = 0.0304016Treynor Ratio = = (0.076 – 0.00182) ÷1.33 = 0.0557744Jensen Ratio = = 0.00182 + 1.33(0.0524-0.00182) = 0.

0690914While the company investment is relatively profitable, the expected returns on assets on the risk taken by Dell remain quite volatile. This is reflected by the low Sharp ratio as well as Treynor ratio. The decision to invest in the open market is however, compensatory. UPS Inc.The NYSE reported that UPS Inc had Ri = 11.98%, β = 0.9, and δ = 0.066203. The market rate of return and RFR are constant factors of the market and Treasury (Sanwal, 2007). Therefore;Thus, Sharp Ratio = = (0.

1198 – 0.00182)/0.066203 = 17.820945Treynor Ratio = = (0.1198 – 0.00182)/0.9 = 0.1310889Jensen Ratio = = 0.00182 + 0.9(0.0524 – 0.00182) = 0.00182 + 0.045222 = 0.047042Ford Motor CorporationAccording to NYSE (2012) as at February 4, Ford Motors was rated as follows: Ri = 4.04%, δ = 1.3 and β = 2.53. The market rate and RFR remain constant. Thus; Sharp Ratio; = = (0.0404 – 0.00182)/1.3 = 0.0296769 Treynor Ratio = = (0.0404 – 0.00182)/2.

53 = 0.0152490 Jensen Ratio = = 0.00182 + 2.53(0.0524 – 0.00182) = 0.1297874Microsoft CorporationThe figures for Microsoft Corp as at February 4, 2012 were reported by NYSE (2012) as follows: Ri=22.55%, δ = 1.7 and β = 0.97. The market rate and RFR remain constant. Thus Sharp Ratio; = = (0.2255 – 0.00182)/1.7 = 0.1315764 Treynor Ratio = = (0.2255 – 0.00182)/0.97 = 0.2305979 Jensen Ratio = = 0.00182 + 0.97(0.0524 – 0.00182) = 0.

0508826Wal-Mart Co.Wal-Mart ratings indicated that Ri = 8.56%, δ = 0.198 and β = 0.34 (NYSE, 2012). The market rate and RFR remain constant. Therefore, Sharp Ratio; = = (0.0856 – 0.00182)/0.198 = 0.42313 Treynor Ratio = = (0.0856 – 0.00182)/0.34 = 0.24641 Jensen Ratio = = 0.00182 + 0.34(0.0524 – 0.00182) = 0.019017General ElectricThe Ri = 2.21%, δ = 1.87 and β = 1.86 in the weekly report of NYSE as at the Friday 3 February 2012. The market rate and RFR remains constant.

Therefore, Sharp Ratio; = = (0.0221 – 0.00182)/1.87 = 0.01084 Treynor Ratio = = (0.0221 – 0.00182)/1.86 = 0.01090 Jensen Ratio = = 0.00182 + 1.86(0.0524 – 0.00182) = 0.09590Conclusion It is quite evident that the portfolios of these six companies are performing differently. UPS has a high Sharp Ratio which means it is in a better chance of realizing high returns on its assets and investment. Besides, the Treynor ration of Wal-Mart indicates that the company is well positioned to enjoy good returns from the volatile risks taken by the company as argued by Sanwal (2007).

Finally, is worth nothing that Ford and General Electric are relatively stable in the stock market with little volatility in the invested assets thereof. ReferencesNew York Stock Exchange, NYSE, (2012). Statistic Archives 2012: Facts and figures for listed companies. New York, NY: NYSE Euronext.Sanwal, A. (2007). Optimizing Corporate Portfolio Management: Aligning Investment Proposals with Organizational Strategy. New York, NY: John Wiley and Sons.