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Economy : Industry : Company analysis - Essay Example

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Economy – Industry – Company Analysis Prepared by Date Table of Contents 2 Introduction 3 Report body 3 An analysis of the current economic fundamentals 3 Justification for the choice of industry given the economic indicators 6 Industry information 7 Justification of stock using the intrinsic value 8 Forecast of the short term growth rate 9 Estimate of the required return on equity 10 Brief outline of the firms operations 10 Expected performance of the firm given the expected industrial and economic conditions 10 Conclusion 11 References 12 Appendix 14 Assumptions/difficulties 14 Introduction The choice of the right stock for investment depends upon two kinds of analysis…
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Download file to see previous pages The two graphs presented belong are indicating two different indicators, one is the GDP growth rate of the e country and the other one is the Australian Inflation rate. The two different kind of indicators helps to find out the rate at which the economy of the country is progressing and the rate at which the inflation deflated the GDP (Funder 2003, 122). Fig1: Australia GDP growth rate Source: (Dessler 2011, 177) The economic fundamentals indicate that the GDP rate of Australia is stable. Although there are presence of deep troughs and intermittent high peaks but these are normally associated with a strong economy (Funder 2004, 461). Although the analysis indicates that the GDP growth rate has decreased lately since the start of year 2013. Fig 2: Australia Inflation Rate Source: (Dessler 2011, 177) The inflation rate of Australia decreased significantly by the end of year 2013. Although it started rising from the year 2013. The rising inflation rate indicates that the cost of living also increased. The cost of lending will increase and the value of stock decreases. The rise and fall of the values of the equities are intrinsically related to the economic development of the country. The rate at which the GDP improved does not indicate that the value of the stocks will increase any sooner (Dessler 2008, 199). Although the rate at which the inflation rate is decreasing indicates that the cost of living is expected to come down. Apart from that the cost of lending will also come down. The decreasing lending rate also indicates that the value of the equities will increase. Fig 3: Comparison of the GDP growth rate Source: (Dessler 2011, 177) The above diagram indicates the relative performance of Australian GDP in comparison to the GDP growth rate of the rest of the world. The GDP growth rate is traced starting from the year 2011 to the year 2017 (Dessler 2011, 177). The actual data is present from the year 2011 to 2013 and the rest of the data from 2014 to 2017 are based on forecast. The forecasted data predict that the GDP is growing to grow at a rate of only 3.5%. Justification for the choice of industry given the economic indicators The company chosen is Infratil Limited. Infratil Limited deals in infrastructure business, investments across Australia, United Kingdom and New Zealand. Apart from that the company is also involved as retailer of gas and electricity to commercial and individual investors. This indicates that the company is spread across multiple domains. It is involved in manufacturing investment as well as energy sector. In other words, the company belongs to a multi utility sector. A multi utility sector has various advantages in comparison to a single sector. Multi utility sector acts just like a diversified portfolio. It helps to diversify the risk (Bagchi 2006, 559-567). As it is already indicated that the GDP ...Download file to see next pagesRead More
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