The Investment Game Simulation the Financial Comparison of Companies - Assignment Example

Rio Tinto Plc Rio Tinto Plc is a mining group dedicated to the exploration, mining, and processing of mineral resources. The company has over 138 years of experience in the mining industry. I was very attracted by the product portfolio of the company. Rio Tinto products include aluminum, borates, coal, copper, iron ore, titanium dioxide feedstock, diamonds, gold, and silver. The global construction industry will hit a boom soon as Japan has to invest billions to reconstruct a country that has 500,000 new homeless people as a result of the earthquake. Japan will be importing huge amounts of aluminum, iron, and copper for its reconstruction projects. Three commodities which I liked from its product portfolio are gold, silver, and diamonds. The current price of gold in the international markets is $1452 per ounce (Goldprice, 2011). Diamonds have always been one of the most valuable stones in the world. Diamond jewelry can last a lifetime. There were other factors that attracted me towards selecting Rio Tinto as part of my portfolio. The firm had excellent revenues of $60,323 and net income of $14,324 in 2010. The net margin of the company is 23.74%. The company has a global workforce of 102,000 employees. The firm minimizes its risk by having a global operation located in Australia, North America, Asia, Europe and Southern Africa. The business risks of the company are also minimized by having a variety of products and working all sides of the mining industry supply chain. Two strengths of the company are its wide product range and strong market position. Two opportunities for the firm are the surging demand for gold and new investment and innovations. Throughout its history Rio Tinto has been known for its innovation in the mining industry. Rio Tinto is a solid investment that should pay off dividends both in the short term and long term. HSBC Holdings Plc HSBC Holdings Plc is a banking and financial sector provider. The bank has an impressive customer portfolio of over 100 million customers worldwide. The company differentiates itself by providing a diverse range of banking and financial services. The firm has its corporate headquarters in London, United Kingdom. I liked the fact that the client base of the company included personal, commercial, corporate, and institutionalize investors. The firm has a network of 8000 offices across 88 countries. The banking industry has gone through a lot of changes since the global recession. The banks are now more risk averse which is a strategy that minimizes the risk of default on loans. Despite the losses that the industry incurred between 2007 and 2009 the banking industry had a solid recovery in 2010 (Plunkett Research, 2011). HSBC was one of the banks that were protected by the U.K. government during the recession. The fact that the government owns 41% of HSBC is an indicator that the government will invest in HSBC to ensure its success. The global penetration of the company of having a physical presence in over 40% of the world’s countries is a good indicator of the success of the firm. Normally banks are more conservative in their selection of global expansion. The revenues of the company in 2010 were $62,096 million with net income of $5,834 million. The net margin off HSBC is 9.39%. The company has a global workforce of 289,435 employees. The market capitalization of the enterprise is $201,000 million. Two strengths of the bank are its strong capital base and brand perception. The company could take advantage of strategic acquisitions and growth by expansion in emerging markets. The firm could achieve significant growth by penetrating new locations. The favorable forecast for the industry was a factor that made me invest in HSBC. BT Group Plc BT Group Plc is a UK based communication company. The firm is considered one of the world’s leading communication companies. BT has been able to penetrate the communications marketplace at over 170 countries around the world. The services offered by the company include network IT services; local, national, and international communication services; and higher broadband internet product services. Worldwide the demand for broadband internet services is on the rise. There are 1.97 billion internet users worldwide which means that nearly 28.7% of the population is online (Internetworldstats, 2011). Companies such as BT have the opportunity to continue to grow in the broadband internet business due to the fact that the internet has become as important as having a phone in your home. BT is in a favorable position in the industry due to the fact that the firm has been able to penetrate nearly 85% of the nations across the world. The global workforce of BT amounts to 107,021 employees. In 2010 BT Group generated revenues of 20,859 million GBP and net income of 1028 million GBP. The net margin of the company for that financial period was 4.92%. Two strengths of the company that make this firm attractive are its solid market position in its domestic marketplace and its wide range of products and services. Two opportunities the firm has available are the possibility of entering into strategic alliances and growth in telecommunication services. The market capitalization of the company is 14,329 million GBP. The firm has 7,762 million shares outstanding and the enterprise has a current value of 24,824 million GBP. The potential for further growth in the telecommunication industry was one of the factors that attracted me to invest in BT Group Plc. BP Plc BP is one of the largest players in the oil and gas industry. The firm is vertically integrated and its operations include exploration and production of natural gas and crude oil; refining of crude oil; manufacturing petroleum products; marketing refined products; construction and mining; and transportation of crude oil. The company controls all phases of its supply chain which helps the firm maximize profits. This firm is currently enjoying very nice profits due to the fact that crude oil prices are one the rise. The price of gasoline has almost reached $4 a gallon already. The all time high price of crude oil occurred in the summer of 2008 when the barrel reached $147 dollars. There are some early projections that stipulate that the price of crude oil might reach $200 a barrel by the summer of 2012 (Futurepredictions, 2011). The natural gas business is another tremendous sector. A new trend that can reap lots of profits for the industry is the fact that some transportation companies such as UPS are switching their fleet to environmentally friendly natural gas powered vehicles. The development of vehicles that can be powered by natural gas is an innovation that could increase the demand for natural gas worldwide. BP has a global staff of 80,300 employees. In 2010 the company generated revenues of $243,965 million and net income of $16,578 million. The net margin of the company for that accounting period was 6.80%. Two strengths that make the firm’s common stock an attractive proposition are its market leadership and its robust upstream asset base. Two opportunities the firm can capitalize on are opportunities in unconventional energy sources and new exploration resources. The market capitalization of the company is $136,501 million. The current trend in the prices of crude oil was the primary factor that attracted me to invest in BP Plc Conclusion The investment game simulation has been a great learning experience for me. One of the things that I realized about investment is that qualitative information is sometimes more valuable than quantitative information. The financial numbers sometimes do not tell the whole story. The prices of common stocks in the London Stock Exchange vary on a daily basis. News about the company and the industry are the primary factors that affect the price of a stock. The four stocks that were featured in this paper were selected for different reasons. I choose Rio Tinto Plc due to the fact that I foresaw a rise in the demand for its natural resource products due to the rise in demand that will come from the reconstruction project in Japan. HSBC was selected because the outlook for the financial services and banking industry is bright for 2011. BT Group was chosen due to the fact that the firm has one of the best global penetrations in the communication industry and the demand for internet services is on the rise. The final firm that I choose was BP plc. The reason this firm was chosen was due to the rising prices of crude oil in the world markets. The projections stipulate that the price of petroleum will continue to rise until 2012. Appendix A: Financial comparison 4 companies Rio Tinto HSBC BT BP Revenues $60323 million $62096 million 20859 million GBP $243965 million Net Income $14324 million $5834 million 1028 million GBP $16578 million Net margin 23.74% 9.39% 4.92% 6.80% Market capitalization $265307 million $201,000 million 14329 million GBP $136501 million EPS 3.01 USD 0.34 USD 0.13 GBP 0.88 USD References Goldprice.org (2011). Gold Price per Ounce. Available from < http://goldprice.org/gold-price.html> [Accessed 5 April 2011] Internetworldstats.com (2011). Internet Usage Statistics: The Internet Big Picture. Available from [Accessed 6 April 2011] Futurepredictions.com (2011). Source of Likely and Preferable Futures. Available from [Accessed 5 April 2011] Plunkett Research (2011). Introduction to the Banking, Mortgage and Credit Industry. Available from [Accessed 5 April 2011] Read More