Question 2: Valuation of a Company’s Shares

The above figure directly states about the overall P/E ratio of Anglo-American Company for the past 10 years. The above calculations states about the overall P/E ratio, which changes with the earnings per share of the organisation (Sharif, Purohit & Pillai, 2015). There is direct link between the P/E ratio of the company and the FTSE 100, where decline int eh value in the market is witnessed within the organisation. From the relevant analysis, it has been detected that the increment in P/E ratio of the industry and the company is similar in nature, which directly affects the overall share price conditions of the company. Thus, in the similar process the overall share price value of the companies has reacted with the price fluctuations of the Index. The impact of P/E ratio of the organisations are similar, which is mainly altering the share price of the company on yearly basis regardless of the EPS increment. The company’s EPS has lower impact on their share price, where higher income generated by the organisation has minimal impact on its valuation (Arkan, 2016).

There are other factors that have an impact on the share price value of the company, which are depicted as follows.

• Change in the current capital market trend, which have direct impact on the share valuation of the company.
• Changes in the dividend declared by the organisation, which crates demand in the capital market (Phan, Sharma & Narayan, 2015).
• Alterations in debt to equity conditions and beta values directly have impact on valuation of the company.

Question 3: Portfolio Analysis

a) Creating four equally weighted portfolios:

b)  Determining the betas for BP and Ferguson

References:

Arkan, T. (2016). The importance of financial ratios in predicting stock price trends: A case study in emerging markets. Finanse, Rynki Finansowe, Ubezpieczenia, 79(1), 13-26.

Phan, D. H. B., Sharma, S. S., & Narayan, P. K. (2015). Stock return forecasting: some new evidence. International Review of Financial Analysis, 40, 38-51.

Sharif, T., Purohit, H., & Pillai, R. (2015). Analysis of factors affecting share prices: The case of Bahrain stock exchange. International Journal of Economics and Finance, 7(3), 207-216.