January 28, 2007
January 29, 2006
January 30, 2005
February 1, 2004
February 2, 2003
February 2, 2007
February 3, 2006
January 28, 2005
January 30, 2004
January 31, 2003
The working details and financial calculations used for the analysis are available in the appendices at the end of the assignment.
Whilst the two companies operate in the same market and are keen rivals, with Lowe’s’ being the nearest competitor to The Home Depot, the actual distance between these two is prima facie substantial with The Home Depot being practically two times the size of Lowe’s, both in sales and in profits.
The analysis of the financial statements of the two companies for the five years 2002 to 2006 covers issues like the percentage increase in sales and profits during this period, as well as the analysis of a number of ratios that indicate (a) year on year increase of turnover and profits, (b) profitability, (c) use of long term assets, capital employed and working capital, and (d) capital gearing. An analysis and comparison of various financial and operational ratios over a period of a number of years helps in validating the authenticity of presented figures by enabling analysts to compare related figures, for example year on year increases in sales and profits, and the relationships between sales and profits, sales and capital employed, and current assets and current liabilities, and locate and investigate anomalies that arise from year to year.
“While it is useful to understand the absolute quantum of each asset, liability and revenue item in isolation, far greater understanding of its implication with respect to the trend and performance of the company can be achieved by a `relationship’ study. For instance, if one studies profits in relation to sales for the current year and compares it with the same relationship for a series of years, a greater understanding of the trend and performance can be had. The `relationship’ study referred has two facets: i) the relationship of one item to another for the current or previous years, but in respect of the same company, and ii) the relationship of these parameters with industry figures or representative figures of competitors or of firms of similar size and operations. The first set enables one to understand the performance of the company in isolation, while the second gives an insight as to where the company stands vis-à-vis the industry or competition.”
Construction of Investment Portfolio
To: Mr Bernard Riemann
From: Investment Manager
Date: 28 November 2007
Subject: Construction of Investment Portfolio
Overview: The investment portfolio recommended is based on the discussion with you. The key points that emerged from our discussions are as follows:
Total investment required to be made is £1,000,000
The portfolio should include at least 5 equity securities and at least 3 debt securities. Besides these some other investment products may also be included. The portfolio break up should be at a minimum:
Equity investments: £400,000
Investment in Debt securities: £200,000
Investment in other products: £350,000
You do not want to invest in ‘very risky’ investments, but are willing to accept some additional risk if there is adequate compensation in the form of increased returns
Investment will be made for a medium to long term. Two months are considered as medium to long term.
Investment in the recommended portfolio will be made on 28th November 2007
Your total wealth is approximately £500,000. This includes:
Residential Property: £800,000
Loans to Relatives: £200,000
Amounts proposed to invest: £1,000,000
Suggested Portfolio You are advised to adopt a lower risk and a more diversified institutional approach. This will require you to have a portfolio of assets. In general, riskier investments, such as equities provide the best returns over the long term, but they are also most volatile. However, because you are only planning to invest in short to medium term, you will not be much affected by the volatility. Nevertheless, combining different types of investment in a portfolio can help you minimise and variations especially if the securities in your portfolio are “non-correlated” (i.e. their prices move independently).
On the basis of above information and the investing assumptions (Refer appendix A), the most appropriate asset model for you appears to be: Medium Risk
Individual securities and investment products You are therefore advised to make your investments in the securities given in the table below:
Percentage of Total
Equity Securities (FTSE 100)
Land Sec (R.E.I.T.)
Debt Securities and Funds
9% Treasury Loan Bond 2008
SWIP Defensive Gilt Securities