Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis-II - Question Paper

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2.


Year
2001-02
2002-03
2003-04
2004-05
2005-06

PAT
20.26
129.33
96.75
127.35
127.16

Networth
1007.54
1067.58
1181.33
1281.15
1371.12

Debt
1638.71
1340.2
1355.4
1682.42
1946.82

ROE
2.01
12.11
8.19
9.94
9.27

D\E
1.63
1.26
1.15
1.31
1.42




computation of Co-efficient of variation:

ROE



2.01
-6.30
39.68

12.11
3.80
14.47

8.19
-0.12
0.01

9.94
1.63
2.66

9.27
0.96
0.93

41.53

57.75


Mean = 41.53/5 = 8.31

Variance = 57.75/(5-1) = 14.44%2

Standard deviation = 3.8%

Therefore,

Coefficient of variation = Standard deviation / mean *100

= 3.8/8.31 * 100

= 45.75%

computation for the computation of avg. Debt\Equity ratio:

avg. debt/equity ratio = (1.63 + 1.26 + 1.15 + 1.31 + 1.42) / five = 1.35

Therefore, Ke = Rf + (2 * avg. D\E ratio) + (0.11 * co-efficient of variation of ROE)

Ke = 5.5 + (2 * 1.35) + (0.11 * 45.75)

= 13.23%
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3.


Arvind mills




Next 10 years
After 10 years

Payout ratio
0
60%

Sales/book value
1.2
–

Expected growth
9.6%
5%

Cost of equity
13.23
13.23

Profit margin
8
8

Beta




Expected growth rate for Arvind mills ltd. = (1 – Payout ratio) * Profit margin * Sales to book value ratio

= (1 – 0) * 0.08 * 1.2

= 0.096 i.e. 9.6%

Price to sales ratio can be obtained out from the subsequent formula:

Price to Sales ratio =

= 0.08[5.526]

= 0.4421

Now, Sales per share for the company is Rs.76.03

Therefore Price for the company is 76.03 0.4421 = Rs.33.61

Industry

Earning:   Approval pending.