Financial Investment Oppotunities Assignment 2

Nguyễn Thị Kiều Anh - Snow - F05014

BANKING ACADEMY OF VIETNAM
BTEC HND IN BUSINESS (ACCOUNTING)
ASSIGNMENT COVER SHEET

NAME OF STUDENT

Nguyễn Thị Kiều Anh - Snow - F05A

REGISTRATION NO.

F05-014

UNIT TITLE

ASSIGNMENT NO

Unit 39: Financial Investment Opportunities
Investment Portfolio and Interpretation of Financial
Information
2 of 2

NAME OF ASSESSOR

Joey Lai

SUBMISSION DEADLINE

20th December 2013

ASSIGNMENT TITLE

I, ____Nguyễn Thị Kiều Anh____ hereby confirm that this assignment is my own work and
not copied or plagiarized from any source. I have referenced the sources from which
information is obtained by me for this assignment.

___________________________
Signature

____20 December 2013___
Date

FOR OFFICIAL USE

Assignment Received By:

Date:

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Nguyễn Thị Kiều Anh - Snow - F05014
Unit Outcomes

Outcome

Evidence for
the criteria

Assessor’s

decision

Feedback

First
attem
pt
Identify the
needs of
different
investors

Understand
investors’
needs
LO3

3.1

Design
portfolios of
investments for
different
individuals

3.2

Explain the
functions of
financial

advisers and
how to
select one

3.3

Explain
investors’ rights
and the
protection
available to
them

3.4

Explain the
information in
the financial
pages of The
Financial Times

4.1

Understand the
working of the Calculate stock
stock
exchange ratios
exchange and and be able to
the range of
explain what

investments
they mean
available
Describe and
LO4
evaluate
collective
investments,
e.g.
Investment and
unit trusts
OEICs and
bonds.

4.2

4.3

2

Rework

Internal
Verificati
on


Nguyễn Thị Kiều Anh - Snow - F05014

Outcome

Evidence for
the criteria

Internal
Verificati
on

Assessor’s
decision

Feedback

First
attem
pt
Merit grades awarded

M1

M2

M3

Distinction grades awarded

D1

D2

D3

Rework

Assignment
( ) Well-structured; Reference is done properly / should be done (if any)

Overall, you’ve

Areas for improvement:

ASSESSOR SIGNATURE

DATE

/

NAME: ..............................................................................
(Oral feedback was also provided)
STUDENT SIGNATURE

DATE

NAME : .............................................................................
FOR INTERNAL USE ONLY
VERIFIED

YES

NO

DATE
: ................................................................
VERIFIED BY : ................................................................
NAME
: ................................................................

3

/

/

/


Nguyễn Thị Kiều Anh - Snow - F05014

A REPORT FOR SENIOR PERSONAL FINANCIAL CONSULTANT

Prepared for:
Lecturer, Mrs. Joey Lai
Financial Investment Opportunities
Banking Academy, Hanoi
BTEC HND in Business (Finance)

Prepared by:
Nguyễn Thị Kiều Anh - Snow - F05A
Registration No: F05-014
No of words: 3300

Submission date: 20th December, 2013

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Nguyễn Thị Kiều Anh - Snow - F05014
TABLE OF CONTENTS
INTRODUCTION ..................................................................................................................... 6
CONTENTS ............................................................................................................................... 7
TASK 1: UNDERSTAND INVESTORS’ NEEDS................................................................... 7
3.1 Identify the investment needs for each investor ............................................................... 7
3.2 Design portfolio of investments of different individuals.................................................. 9
3.3 Explain the functions of financial advisers and how to select one ................................. 13
3.3.1 The function of financial advisers ............................................................................ 13
3.3.2 The way to choose financial adviser ........................................................................ 13
3.4 Explain investors’ rights and the protection available to them ...................................... 14
3.4.1 Investors’ rights ........................................................................................................ 14
3.4.2 Investors’ protection ................................................................................................. 15
TASK 2: UNDERSTAND THE WORKING OF THE STOCK EXCHANGE AND THE
RANGE OF INVESTMENT AVAILABLE ........................................................................... 16
4.1 Explain the information in the financial pages of The Financial Times ........................ 16
4.2 Calculate stock exchange ratios and be able to explain what they mean ....................... 17
4.2.1 Earnings per share (EPS).......................................................................................... 17
4.2.2 P/E ratio .................................................................................................................... 18
4.2.3 Dividend yield .......................................................................................................... 18
4.2.4 Dividend cover ......................................................................................................... 19
4.3 Describe and evaluate any one collective investment (investment trust, unit trust,
mutual funds, OEICs) on the London Stock Exchange (LSE) ............................................. 19
4.3.1 General description on collective investment .......................................................... 19
4.3.2 Evaluate investment trust on the London Stock Exchange (LSE) ........................... 20

CONCLUSION ........................................................................................................................ 22
REFERENCES ........................................................................................................................ 23

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Nguyễn Thị Kiều Anh - Snow - F05014
INTRODUCTION
In this report, I play role as the financial consultant in Citizens Investment Ltd. My
responsibility is base on the information about my clients to provide for them with
personalized guidance to support all of their financial needs. Besides, I also calculated the
stock market ratios of BIX Company in order to recommend the clients whether should in
that company or not. I write this report based on information in the Investing course book and
some reference books, many sources from internet, newspaper. In addition, many slides
which were continuously updated every week by lecturer Joey also help me collect
information, theory in order to support in giving the advices for clients in specific financial
situation.

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Nguyễn Thị Kiều Anh - Snow - F05014
CONTENTS
TASK 1: UNDERSTAND INVESTORS’ NEEDS
3.1 Identify the investment needs for each investor
There are 4 main types of investors’ needs namely:
Types of needs

Characteristics
Low risk tolerance investors. Focused on the security of investment,

Conservative

likely to give up higher amount of return over the long-term for the

investors’ needs

comfort of low volatility.
Low to medium risk tolerance investors. Focused on generating

Retirement

wealth over the medium to long term while maintaining some

investors’ needs

fluctuations of return in the short-term.
Medium to high risk tolerance investors. Focused on producing

Balanced
investors’ needs

returns which are well ahead of inflation over the long term.

Growth investors’

High risk tolerance investor. Focused on producing returns which are
significantly ahead of inflation over the long-term.

needs

Table 1: Types of investors’ need (Sunsuper, 2012)
The need of Peter, Michael and Sandy is identified based on analyzing their risk tolerance,
financial position and investment horizon as follows:


Peter

Characteristics

Analysis
-

Age: 57

-

Gender: Male

Peter is old so capacity to work decrease, opportunity to earn money is
Risk tolerance

less, income declines as well as does not have capacity to recover loss
from investment anymore  is not willing to accept high risk but accept
medium to low risk to have opportunity for saving money for retirement.
 Peter belongs to moderate risk tolerance.
-

Financial
position

Planning for retirement soon and has less than £10,000 saved

He is near to retirement; however he has not started saving for retirement
so saving money is small (less than £10,000).
 Peter has weak financial position

Investment

Saving for retirement soon (in less than 3 years)

horizon

 Peter’s investment is medium term horizon
 Investor’s needs: Needs for retirement
Table 2: Peter’s need
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

Michael

Characteristics

Analysis
-

Age: 45

-

Gender: Male

-

Experience: Has some (has already started investing but needs more
guidance to clearly understand his choices)

Risk tolerance

Michael is in middle years of working career. He still has enough
capacity to recover the loss from investment. Moreover, he also has some
experience in investment.
 Michael belongs to aggressive risk tolerance.
Has more than £25,000 to invest

Financial

-

position

 Michael has strong financial position
Plans to use the money down the road but still have more than 5 years to

Investment

go and looking for direction.

horizon

 Michael’s investment is long term horizon
 Investor’s needs: Needs for growth
Table 3: Michael’s need



Sandy

Characteristics

Analysis
- Age: 16
- Gender: Female
- Income: Does not have income yet
- Experience: Does not have (has not yet started any types of savings plan)

Risk tolerance

Sandy is young students. She still does not have income yet however she
can borrow money from parents, friends and banks to invest. She does not
have experience in investment but she has high education and can hire
advisors for giving investment advices.
 She belongs to moderately aggressive risk tolerance.

Financial
position
Investment

horizon

-

Has less than £10,000

With age of Sandy, having the amount of money is appropriately £10,000
is not small  Sandy has normal financial position
Pay for college (in 3 - 5 years)
 Sandy’s investment is long term horizon
 Investor’s needs: Needs for balanced
Table 4: Sandy’s need
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3.2 Design portfolio of investments of different individuals
A portfolio is a combination of different investment assets mixed and matched for the
purpose of achieving investor’s goals (investopedia, n.d.). Based on analysing the needs of 3
investors: Peter, Michael and Sandy in first part of report, the researcher can design an
investment strategy by using asset allocation. In order to accurately assess the portfolio for
different investors, this report will compare two pie chart of investment portfolio which is
designed based on two different software of reliable website, that are cgi.money.com and
money-zine.com.


Investment portfolio for Peter

Peter belongs to moderate investor who doesn’t accept high risk but accept some risk to get
good return to save for retirement.

Recommended portfolio 1

Recommended portfolio 2

(money-zine, n.d.)

(cgi.money, n.d.)

The portion for bonds, large-cap stocks, The figure shows that he should spend 48%
foreign stocks and small-cap stocks are 70%, in bonds, 32% in cash and 20% in stocks. It
15%, 10%, and 5% respectively. Portfolio means that besides bonds, Peter should invest
shows that bonds is good choices for Peter more on cash because cash investment is
because bond is low risk financial instrument considered as ideal for increasing savings
and can generate steady growth interest as with low risk which make sure a certain
well as can be flexible in time of investment.

safety for retirement saving.

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Calculation risk and return of investment
Recommended portfolio 1

Recommended portfolio 2

Assume have the returns on assets as follows

Assume have the returns on assets as follows

Assets
Probability Return
Bonds
70%
8.8%
Large-cap stocks
15%
13.4%
Foreign stocks
10%
14.1%
Small-cap stocks
5%
14%
(Statman, 2000)


Expected return

Assets
Bonds
Stocks
Cash


Profitability
48%
20%
32%

Return
8.8%
13.5%
6.8%
(Statman, 2000)

Expected return

E(R) = 0.48 × (8.8%) + 0.2 × (13.5%) + 0.32

E(R) = 0.7 × (8.8%) + 0.15 × (13.4%) + 0.1 × × (6.8%) = 9.1%
(14.1%) + 0.05 × (14%) = 10.28%
 Standard deviation (Risk)


Standard deviation (Risk)

[SD (R)]2 = 0.48 × (0.088 - 0.091)2 + 0.2 ×

[SD (R)]2 = 0.7 × (0.088 - 0.1028)2 + 0.15 × (0.135 - 0.091)2 + 0.32 × (0.068 - 0.091)2 =
(0.134 - 0.1028)2 + 0.1 × (0.141 - 0.1028)2 + 0.05 5.608 × 10-4
× (0.14 - 0.1028)2 = 5.1446 × 10-4

 SD (R) = (5.608 × 10-4)0.5 =

 SD (R) = (5.1446 × 10-4)0.5 = 0.0227 = 2.27%

0.0236 = 2.36%

 Result above shows that Peter should choose the investment portfolio 1 which reduces
0.09% risk but still brings return higher 1.18% than investment portfolio 2.


Investment portfolio for Michael

Michael is aggressive investor who doesn’t concern about market fluctuation, willing to
accept high risk for receiving high return, high growth in the future.
Recommended portfolio 1

Recommended portfolio 2

(cgi.money, n.d.)

(money-zine, n.d.)

Michael is recommended that he should invest The second recommendation shows that he
most of the assets on stocks with large-cap should spend the most (60%) for stocks which
stocks (30%), foreign stocks and small-cap are considered as good choices for generating

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Nguyễn Thị Kiều Anh - Snow - F05014
stocks accounted for the same portion (20%) wealth due to high risk with high rate of
which bring high interest but also go with high return. The other safer investments are
risk. Although Michael accepts high risk to get spending on 24% in bonds and 16% in cash
maximum interest, he still should continue which will help Michael recover the loss from
investing small part of his assets (30%) in bonds investing more in stocks in the case of stocks
for safety in investment.

investment is unsuccessful.

Calculation risk and return of investment
Recommended portfolio 1

Recommended portfolio 2

Assume have the returns on assets as follows

Assume have the returns on assets as follows

Assets
Probability Return
Bonds
30%
8.8%
Large-cap stocks
30%
13.4%
Foreign stocks
20%
14.1%
Small-cap stocks
20%
14%
(Statman, 2000)


Expected return

Assets
Bonds
Stocks
Cash


Profitability
24%
60%
16%

Return
8.8%
13.5%
6.8%
(Statman, 2000)

Expected return

E(R) = 0.24 × (8.8%) + 0.6 × (13.5%) + 0.16

E(R) = 0.3 × (8.8%) + 0.3 × (13.4%) + 0.2 × × (6.8%) = 11.3%
(14.1%) + 0.2 × (14%) = 12.28%
 Standard deviation (Risk)


Standard deviation (Risk)

[SD (R)]2 = 0.24 × (0.088 - 0.113)2 + 0.6 ×

[SD (R)]2 = 0.3 × (0.088 - 0.1228)2 + 0.3 × (0.135 - 0.113)2 + 0.16 × (0.068 - 0.113)2 =
(0.134 - 0.1228)2 + 0.2 × (0.141 - 0.1228)2 + 0.2 7.644 × 10-4
× (0.14 - 0.1228)2 = 5.2636 × 10-4

 SD (R) = (7.644 × 10-4)0.5 =

 SD (R) = (5.2636 × 10-4)0.5 = 0.0229 = 2.29%

0.0276 = 2.76%

 In conclusion, both figures also recommended for Michael should invest the most on
stocks, but the first recommendation is more suitable than second one because with
aggressive investors such as Michael, investing in cash isn’t suitable for get profit over the
long-term. Moreover, holding a portfolio of several stocks instead of holding stocks in
isolation will help Michael reduce 0.47% risk while still get return higher 0.98%.


Investment portfolio for Sandy

Sandy is moderately aggressive investors who willing to accept medium to high risk for
receiving high return, high growth in the future.

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Recommended portfolio 1

Recommended portfolio 2

(money-zine, n.d.)

(cgi.money, n.d.)

The first recommendation for Sandy is spending The portion for bonds, stocks, cash are 40%,
the most of her assets on investing in stocks with 40%, and 20% respectively. Portfolio shows
large-cap stocks accounted for 30%, foreign that investing more on stocks is good choices
stocks (15%) and 10% for small-cap stocks. for purposes generating wealth to support for
However, still invest large part in bonds (45%) college expenses of Sandy. However, bonds
which brings steady growth interest, flexible in and cash still accounted 60% of investment
investment. This prefer to her characteristics of for reducing the loss from investment because
moderately aggressive risk tolerance.

Sandy only is medium to high risk takers.

Calculation risk and return of investment
Recommended portfolio 1

Recommended portfolio 2

Assume have the returns on assets as follows

Assume have the returns on assets as follows

Assets
Probability Return
Bonds
45%
8.8%

Large-cap stocks
30%
13.4%
Foreign stocks
15%
14.1%
Small-cap stocks
10%
14%
(Statman, 2000)


Expected return

Assets
Bonds
Stocks
Cash


Profitability
40%
40%
20%

Return
8.8%
13.5%
6.8%
(Statman, 2000)

Expected return

E(R) = 0.4 × (8.8%) + 0.4 × (13.5%) + 0.2 ×

E(R) = 0.45 × (8.8%) + 0.3 × (13.4%) + 0.15 × (6.8%) = 10.28%
(14.1%) + 0.1 × (14%) = 11.50%
 Standard deviation (Risk)


Standard deviation (Risk)

[SD (R)]2 = 0.4 × (0.088 - 0.1028)2 + 0.4 ×

[SD (R)]2 = 0.45 × (0.088 - 0.1150)2 + 0.3 × (0.135 - 0.1028)2 + 0.2 × (0.068 - 0.1028)2 =
(0.134 - 0.1150)2 + 0.15 × (0.141 - 0.1150)2 + 6.3232 × 10-4
0.1 × (0.14 - 0.1150)2 = 6.0025 × 10-4

 SD (R) = (6.3232 × 10-4)0.5 =

 SD (R) = (6.0025 × 10-4)0.5 = 0.0245 = 2.45%

0.0251 = 2.51%

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Nguyễn Thị Kiều Anh - Snow - F05014
 From the analysis above, it is easy to recognize that 2 recommended portfolios are also
reasonable for Sandy. However, Sandy should choose the investment portfolio 1 which

will bring return higher 1.22% with risk lower 0.06% than investment portfolio 2.
3.3 Explain the functions of financial advisers and how to select one
3.3.1 The function of financial advisers
A financial advisor (or adviser) is a trained specialist who helps people with their investments
and financial planning (wisegeek, 2013). Financial advisors provide clients with advice on
financial matters, making recommendations on ways to best utilise investors’ money.
Working as financial advisors, they must research the marketplace and advise clients on
products and services available as well as ensure that investors understand those that best
meet their needs. Before giving any suggestion for clients, financial advisors must
accumulate customers’ characteristics, financial position and customer needs to give the
advice based on this data and they also must have specialty skills, and follow the regulations
of financial industry as well (prospects, 2013).
3.3.2 The way to choose financial adviser
Firstly, clients should identify types of financial advisor. Financial advisors are divided into
three types:
- Tied advisers: working for one organization, such as bank, building society or insurance
company, and selling only their products.
- Multi-tied advisers: selling several companies’ products.
- Independent financial advisers (IFAs): advising on any company’s products and, by
law, providing clients with the most suitable advice (Arnold, 2010).
Investors

Types of advisors

Reasons
Peter’s need for retirement  He only need choose products

Peter

Tied advisers

from one specific provider which help him receive steady
interest for saving for retirement soon.
Michael’s need for growth  IFAs could help him widen

Michael

Independent

products chosen from the whole of the market for finding new

financial advisers

investment opportunities for generating more wealth in the
future.
Sandy’s need for balanced  Sandy only need generate wealth

Sandy

Multi-tied advisers

with products from several providers, no need expand whole of
the market like Michael.

Table 5: Identify suitable types of advisors for different investors

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After identify types of financial advisor which suitable the most for themselves, investors
should focus on legal of a financial advisor. All financial advisors must register with
Financial Service Authority (FSA) so it is easy for investors to ensure the qualification of
financial advisors by entering into homepage of FSA.
Thirdly, in order to choose good financial advisors, investors needs to consider on many
aspects, namely
-

Advisors are required to be registered with Security and Exchange Commission
License (SEC)  Ensure for investors due to financial advisor owed important liability
in their financial.

-

Look for advisors with experience  Ensure advisors’ ability to deal and handle
different situation

-

Look for advisors with professional designations (Chartered Financial Analyst - CFA,
Certified Investment Management Analyst - CIMA ...)  Ensure advisors is an expert in
the field that they are trained.

-

Typical professional investment advice fees  Ensure that investors can afford fee for
services.

-

Check the track record and reputation of advisor  Give confident for investors about
advisors’ ability.

-

Expect lots of questions from good advisor to assess clients’ investing expertise 
Good advisors always consider the big picture of clients’ financial situation before
advising on products or recommending specific actions (Beyers, 2012).

In conclusion, based on above process, Peter, Michael and Sandy could make sure that their
financial advisor is good for them to reach success in investment.
3.4 Explain investors’ rights and the protection available to them
3.4.1 Investors’ rights
There are six common rights of investors, including:
Investors’ right

Descriptions
Investors have power in electing directors, which takes place at the

Voting Power

company’s meeting annually and voting for proposals for fundamental
changes affecting the company such as liquidation or mergers.

Ownership

Investors own a piece of a portion of the company that has value when
business thrives.

Transfer ownership

Investors are allowed to trade their stock on an exchange that is they
can exercise the right to transfer ownership.

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Dividend
Entitlement

Investors have a right to claim any profit a company pays out in the
form of a dividend, along with a claim on assets.

Inspect Corporate

Investors have right to be provided annual report which plays important

Books and Records

role in helping them assess financial position of the company.

Suing

If the company has any illegal acts or provide inaccurate view of its
financial health, investors have right for suing the company
Table 6: Investors’ right (investor, 2013)

3.4.2 Investors’ protection
UK government provides some regulations to protection rights of investors as follows:



Protection from wayward financial services professionals

Financial Services Authority (FSA) regulates so many different aspects of financial system
from stockbrokers, banks and stock markets to independent financial advisers. All firms or
individuals offering financial advice, products or services in the UK must be authorised by
the FSA. Thus, investors can be protected in order to minimize level of the risks, damages
that they may offer (Arnold, 2010).


Regulation of markets

Investors are also protected by rules and regulations in London Stock Exchange, namely as
follows:
Monitors market makers’ quotations and the price of actual trades to ensure compliance

-

with its dealing rules.
-

Look-out for patterns of trading that deviate from the norm with the aim of catching those
misusing information, creating a false or misleading impression to the disadvantage of
other investors or some other market distorting action.

-

Requires companies to disseminate all information that could significantly affect their
share prices.

 Compliance with LSE rules, aimed at making sure members (market makers...) act with
the highest standards of integrity, fairness, transparency and efficiency (Arnold, 2010).


Regulation of companies

Investors have right to receive information about the company and to expect that there are
laws and other pressures to discourage the management from going astray and acting against
investor interests (Arnold, 2010).


Self-protection

Besides, protection of UK government, investors also have to protect themselves by methods
as follows:
-

Make sure the financial service company is authorised (FSA)
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Nguyễn Thị Kiều Anh - Snow - F05014
-

Understand the risks of the underlying investments

-

Choosing qualified and ethical a stockbroker and financial advisors

-

Check the fees charged by stockbrokers and financial advisors (Arnold, 2010).

When firm’s wrongful acts or their negligence lead to investors’ damage, they can complaint
by raising the issue with the financial service company first. If investors and company cannot
reach an agreed settlement, the complaints scheme will decide the final outcome of
complaint. If investors are not happy with final decision of the complaints scheme, investors
can still take the matter to court (moneysmart, 2011).
In conclusion, investors such as Peter, Michael and Sandy need understand deeply about right
and protection available for protecting themselves.
TASK 2: UNDERSTAND THE WORKING OF THE STOCK EXCHANGE AND THE
RANGE OF INVESTMENT AVAILABLE
4.1 Explain the information in the financial pages of The Financial Times
Ken Fisher - the author of article “Take advantage of false fears, they create future
demand” give a judgement that global demand increase by giving many evidences in the past.
It is considered as positive information and good news for investors. Because it is obvious that
when demand increase, it creates many business opportunities and corporation can grow more
profit as well as market share. As a result, investors can be easy get more interest with low
risk. The author gives out evidences in 3 aspects to support for his judgement.
Firstly, increasing of air travel industry, the author states that air travel growth only
described for strong world where citizen always have tends expenses than savings and can use
their pocket on expensive services such as air travel for holiday or business purposes.
The next argument of Ken is inventories fall, sale increase. When inventories fall, it
demonstrated that the purchasing power of people increase. It requires company need to
restock to keep pace with that demand.
The last argument is power consumption increase, shipment increase. It implied that when
order more, produce increase, production staff must work more time than usual to achieve
customer demand. As a result, power consumption requirement is higher and shipment also

more busy.
After that, Ken show wrong thinking of most of people about inventories fall, advice people
should think in positive way and recommend that people should invest shares to grow in the
future because business will have good opportunity to develop due to increasing demand.

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Nguyễn Thị Kiều Anh - Snow - F05014
The article “UK investment intentions at six-year high” written by Financial Times
employee on September 2, 2013. There are some differences easy to recognize among two
articles. While article 1 illustrated global demand in different country with large areas, article
2 is only particularly in UK. In addition, article 1 does not mention the increasing demand last
for how long while article 2 shows specific number is 6 year.
In article 2, the author show many contrast opinion about things whether should invest on
machinery for developing economic or not. Adrian Maxwell encourage business should invest
because everything cannot come to business if they only sit and wait while Bart Simpson said
that business still develop if business doing well whether having new machines or not. Cart
Anrntzen pointed out he still have not made investment decisions because increasing demand
is only short term. Therefore, it is necessary for business to consider fluctuations of the rest of
the years before making investment decision.
4.2 Calculate stock exchange ratios and be able to explain what they mean
4.2.1 Earnings per share (EPS)
EPS represent a portion of a company’s profit that is allocated to each outstanding share of
common stock. The high EPS means high value of the shares of stock (Yellowkippy, n.d.).
There are 2 ways to calculate EPS:


Calculate EPS for both ordinary share and preference share
EPS =

-

=

= 4.72p

Number of shares = Ordinary share + Preference share
= (45,000 - 1,800) + (19,800 -1,800) = 61,200



Calculate EPS for ordinary share
EPS =
=

= 5.86p

-

PSD = (19,800 - 1,800) × (50 × 4%) = 36,000

-

Number of shares = Ordinary share = (45,000 - 1,800) = 43,200

In 2012, EPS of BIX (£5.86) is higher than the industry averages (£5.20), which means that
company performs business well and BIX’s value of share of stock is higher than company of
the same industry.
BIX Company can apply 2 following ways to improve EPS:

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Nguyễn Thị Kiều Anh - Snow - F05014


Increase earnings

To do this, BIX has to increase revenues, reduce expenses or both because profit equal total
revenue minus total cost. BIX Company face many costs for operating business such as
admin cost, operating cost, cost of good sales, research and development cost, machinery
cost. BIX can reduce R&D cost, however, this way will lead to consequences such as can not
develop new products, reduce the types of products to sale so it require BIX Company must
give out right strategies instead R&D procedures with low cost before implementing this
way.


Decrease the number of share

In order to decrease the number of share, BIX can apply financial tricks such as issuing
corporate bonds and buy back common stocks.
4.2.2 P/E ratio
P/E ratio measure the relationship between the market share and EPS. A ‘high’ P/E ratio may
imply either high growth or low risk (or both) expected in future (ashgate, n.d.).

=

=

= 9.56 times

P/E of BIX (9.56) is only greater with 0.06 than the industry averages (9.50). This indicates
that investors are willing to pay for BIX’s earnings because of high growth and low risk when
invest in company. In order to increase P/E ratio, BIX need to increase market prices. To do
this, BIX must find out strategies to increase people demand such as update good information
about financial health of company compared with average industry and current economic
trend for giving the confidence for people that their choices is right.
4.2.3 Dividend yield
Dividend yield is a measure for determining how much income a stock provides (ashgate,
n.d.).

Dividend yield of BIX is greater 0.25% than the industry averages (6.00%), which shows that
BIX Company is doing well and shareholders can get more earnings when investing in BIX
Company. High dividend yield lead to high income, however, very high yields can be a sign
of unsustainably high dividend, may be it can be cut in the future. Thus, investors must
analyse the past period to recognize its fluctuations before investing in the company.

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4.2.4 Dividend cover
Dividend cover measures the number of times the current dividend could have been paid from
available earnings. The higher cover, the safer of dividend is (BPP, 2010).
Dividend cover =

= 1.67 times

Dividend cover of BIX Company (1.67) is higher than industry average (1.50), which shows
that BIX Company has safer dividend and ability to maintain dividend of company is higher

0.17 times than compared with industry average.
 From above results, it is easy to recognize that BIX Company is operating well and more
effective than company in the same industry. Thus, investors should invest in BIX Company.
4.3 Describe and evaluate any one collective investment (investment trust, unit trust,
mutual funds, OEICs) on the London Stock Exchange (LSE)
4.3.1 General description on collective investment
Collective investments provide a means for ordinary people to invest in the stock exchange
and to beat inflation by getting good returns (asisa, n.d.).


Two main types of collective investment
-

Investment trust: is types of investment firm formed for holding securities of other
firms, and for obtaining its capital from public issues of shares that are traded on
stock exchange. It is close-ended funds (businessdictionary, 2013).

-

Unit trust: an organization which takes money from small investors and invests it in
stocks and shares for them under a trust deed, the investment being in the form of
shares in the trust. It is open-ended investment (businessdictionary, 2013).



Advantages of collective investment
-

Suit “ordinary share”

-

Flexible: Pay/ invest a whole lump sum
Pay/ invest on regular basis
Can be transferred easily
Purchase/ invest on behalf of other party



-

Offer liquidity (can be converted into cash easily)

-

The amount of return depend on the total unit of fund you hold

-

Tax (CGT) is lower

Disadvantages of collective investment
-

Risk: If the financial market collapses, the collective investment also will be
affected.

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-

The high return from collective investment depends on the time held (medium to
long term)  It does not help investors generate high return in the short term.

-

Performance of collective investment depends on the “fund manager” (how much
experience the fund manager has). If choose one excellent fund manager  high
performance of CI. In addition, it also depends on the evidence in the past few
years (historical performance) (Lai, 2013)

4.3.2 Evaluate investment trust on the London Stock Exchange (LSE)
Among companies of UK investment trust, I chose “Aberforth geared income trust plc” to
analyse and evaluate. Aberforth Geared income trust plc is a split capital investment trust
which has two classes of share: Ordinary shares and Zero Dividend Preference (aberforth,
n.d.).

Figure 1: Historical Stock Chart of Aber.Income.Ord (AGIT) (LSE, 2013)
This chart illustrated the stock price of AGIT in 2013. As can be seen, there were an increase
trend in the stock prices of AGIT. Starting with a slightly increase in the first month of year,
the price of stocks had fluctuations significantly in the middle months of year 2013 from May
to September with lowest point in July (£125 per share) but still higher compared with the first
month of the year. It began increasing again only in short time and reached the highest point
(£162 per share) in the last month of the year.
Stock prices change because of demand and supply. If more people want to buy a stock
(demand) than sell it (supply), then the price moves up. In contrast, if more people wanted to
sell a stock than buy it, the price would fall (Investopedia, 2013).  It can be said that
increasing of AGIT’s stock price is because many people want to buy a stock of AGIT

than sell it  This is a good news for investors who invest in AGIT company.
In order to assess accurately fluctuations in stock prices, I will analysis based on last 5 trades
of AGIT as follows:

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Figure 2: Last 5 trades of Agit’s stocks (LSE, 2013)
Stock price has some changes in last 5 trades on 13 Dec 2013, in which, the price was 162.50
in the beginning of trades and increased to 162.00 in the second trades. It continued increasing
and remained unchanged in the last 3 trades with 162.50. Can be seen that, it is a good sign
for its investors and attractive for investors when intend to invest on AGIT.

Figure 3: Fundamentals of AGIT company (LSE, 2013)
EPS of AGIT for the year 2013 were 8.86p, which increase 6.5% compared with 8.15p for the
year 2012, and increase 4.80% compared with 7.77% for the year 2011. It proves that AGIT
performs business well and AGIT’s value of share of stock increase year by year.
P/E ratio calculated in 30 Jun 2013 (14.60) increase dramatically compared with that of 30 Jun
2012 (11.13). By increasing of P/E ratio, it means that investors are willing to pay for AGIT’s
earnings because of high growth and low risk when invest in company.
In general, with all above analysis, it is easy to recognize that AGIT operating well and
efficiency. As a result, investors may believe that it continue developing greater in the future.

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CONCLUSION

In this report, the reader can understand deeply how to identify the needs of investors and
way to design investment portfolio for different individuals based on accumulated data from
investors. This report also gives much important information about how to choose good
advisors which help investors reach success as well as know exactly rules, and regulations of
UK government apply for ensuring rights themselves during investment time. Last, reader
can know the working of the stock exchange and the range of investment through
understanding information in the Financial Times, meaning of each ratio calculation in
evaluating performance of each company and analysing one collective investment of specific
company for assessing its potential. Hopefully, through this report, readers can understand
more about investment and plan to use the money for investing with aim at developing
economics.

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