Fundamentals of Finance Coursework Example | Topics and Well Written Essays - 2000 words

Fundamentals of Finance - Coursework Example The returns of HSBC are compared against the London Stock Exchange and against Barclays Bank. This report includes the analysis of stock price movement of HSBC, Barclays Bank and London Stock Exchange. Apart from this, Beta of HSBC and Barclays have been calculated and the report also includes beta analysis of the two companies. INTRODUCTION This report analyses the stock price of one of the renowned financial institutions in the world, HSBC. HSBC is considered as the second largest financial and banking group in the world. In this report, stock price movement of HSBC has been compared with the average market movement of London Stock Exchange. In addition to this, the stock price movement of HSBC is compared with one of its competitors, Barclays Bank. In order to have better analysis, the return from market is also compared with return of Barclays as it would help in analysing better whether the movement in price is because of banking industry or the company itself. Barclays has been chosen as the competitor in the report because it is another multinational bank operating in different countries like HSBC. HSBC is considered as the second largest banking and financial services group of the world and according to Forbes Magazine it is also the second largest public company [6. 7]. ... HSBC has increased in 2010 from 2009 and it has reached to a figure of 19.04 billion with a net income of 13.16 billion USD (Annual Report and Accounts, 2010). ANALYSIS Financial Ratios: Liquidity Ratio Liquidity ratios of HSBC do not show very positive figures as the current ratio of HSBC in 2010 is 0.27 which has decreased from 0.30 in 2009. However current ratio in the last five years has been in the range of 0.27 to 0.32 which shows that the bank does not have sufficient current assets or it has too many current liabilities. Liquidity Ratios Formulae 2010 2009 2008 2007 2006 Current Ratio Current Assets/Current Liabilities 0.27 0.30 0.32 0.30 0.28 Quick Ratio Current Assets - Inventory/Current Liabilities 0.27 0.30 0.32 0.30 0.28 Since banks do not have any inventory therefore, current ratio will be the same as quick ratio. Profitability Ratios: Net profit margin has increased in 2010 since 2007; however it is understandable because of the financial crisis that hurt the economy o f the world particularly the financial sector. Net profit margin has increased to 36% in 2010 from 16% showing that the economy as well as HSBC is recovering from recession. Also the return on assets is not attractive and it is representing that the bank is not using its assets effectively or they are underutilized. The same is the case with return on equity as it is too low for investors to invest. Profitability Ratios Formulae 2010 2009 2008 2007 2006 Operating Income Margin Operating Income/Sales 42% 13% 18% 60% 62% Profit Margin Profit/Revenue 36% 16% 15% 54% 49% Return on Assets Profit/Assets 0.58% 0.28% 0.26% 0.87% 0.91% Return on equity Profit/Equity 4.39% 2.19% 2.22% 7.02% 7.16% Leverage Ratio Leverage ratio represents that HSBC has been heavily financed with Debt. The debt ratio