Question

QUESTION 1 (5 marks) Assume that you are a trust officer for the Joss Bank You are attempting to select a pharmaceutical manufacturer's shares for a client's portfolio You have obtained the following data Darcy Hunt 5 Year averages Industry. Opal - Main average ! . - 8 3% 98% 7 9% 13.0 10.0 12.0 107 50 61 46 72% Sales growth Net.income growth Asset growth 10 1% 1.4.2. 16.1 44 Darcy Hunt Current year Industry. Opal Main average 1 16 2% 17 5% | 17 5% 7.8 12.7 430 430 400 230 Return on equity Return on assets Dividend payout -8.5 19.4% 84 31 0 21 6% 11.4 310 Required: Comment on the relative performance of these companies

Answer 1

Opal : The company sales growth and asset growth are above industry norms except net income growth. They have to reduce expenditure to improve net income. Return on equity is above industry norms and return on assets and dividend pay out more or less met industry norms. If the company controls the expenses and effective utilise the assets will become attractive investment company

Main: Due to income and asset growth are low, Main company is paying low dividend though the return on equity and assets ratio is above. If the company reduces expenses and improves income, the company os bet for investment

Darcy: income is very low due to expenses are high and asset growth also is less due to utilising cash for pay out dividend. Company should avoid unnecessary expenses to improve profits

Hunt: Overall performance is above industry norms and doing pretty well. Dividend payment is lower to utilising cash for operations and maintain healthy assets.