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Minimising investment risk in sainsbury and halfords - Free Essay Example

Sample details Pages: 7 Words: 1964 Downloads: 3 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Did you like this example? In the modern world, companies and share holders aim is to gain maximum profit at minimum risk. Risk can be controlled, if thorough understanding of market is done. Risk also plays an important role in corporate finance both for company and investors. Don’t waste time! Our writers will create an original "Minimising investment risk in sainsbury and halfords" essay for you Create order Companies face inconsistency in project cash flow, on the other hand investors faces unpredictability in capital gains and dividends (Watson and Head 2010). A Portfolio can be defined as a combination of securities. Portfolio analysis is a method for selecting the finest range that gives maximum return at minimal risk at various uncertain environments (Huang 2010). For the purpose of the assignment the author had selected one of the well performing retailer M/s Sainsbury and leading Automobile accessories retailer M/s Halfords. In this part of assignment share prices of Sainsbury and Halfords are taken on monthly basis for five years (December 2005-November 2010) and analysis is made [Refer Table-1 in Appendixes]. Mean,Variance and Covariance Based on the above table, the mean of Halfords equity is 0.002400 and that of Sainsbury is 0.002046. Variance measures the volatility from an average. Volatility is a measure of risk, it helps determine the risk an investor might take on when purchasing a specific security (Investopedia.com No Date). The variance of Sainsbury (0.004600) is higher compared to that of Halford (0.004293). Covariance is basically a number that reflects the degree to which two variables vary together (Howell 2008, p.180) Positive covariance indicates that asset returns move together. A negative covariance means returns  move inversely (Investopedia.com No Date). Covariance between Sainsbury and Halford gives a positive value of 0.001572. Descriptive Statistics Risk on investment is measured by standard deviation (ÃÆ' Ãƒâ€ Ã¢â‚¬â„¢) of the return on share (Watson and Head 2010). The standard deviation for Sainsbury is 0.0678218, which is higher compared to that of Halford 0.0655209, clearly stating that higher level of risk on Sainsbury equity. A measure of the degree to which a distribution is asymmetrical (Howell 2008, p.49). Measure of symmetry is defined as skewness. Positive skewness indicates that there is a greater probability of getting higher return. Negative skewness indicates that there is a substantial probability of a big negative return. (advfn.com No Date). The Skewness of Halford is 0.065 and that of Sainsbury is -0.840. Kurtosis refers to the scale to which the curve is peak or flat (Rubin 2010). Halford and Sainsbury have positive Kurtosis of 0.713 and 2.339 respectively. Positive kurtosis indicates a peaked distribution (itl.nist.gov No Date). The correlation between Halfords and Sainsbury is 0.01(Refer Correlation Table in Appendixes). Risk Free Rate Risk free rate of return can be defined as the return that investors acquire without any risk of losing money (Scott[online] 2010). For the purpose of finding out the monthly risk free rate, we had taken the yearly interest rate for 3  ¼ % Treasury Gilt Maturing on 07/12/2011 (United Kingdom Debt Management Office [Online] 2010) Efficient Frontier Efficient frontier can be defined as situation of maximum return from minimum risk (businessdictionary.com No Date). Different combination of securities creates different level of return. The efficient frontier details the best of these security combinations (investinganswers.com No Date). The risk free rate for investing on the UK guilt is 0.00051573 which gives maximum return with minimum risk. Minimum risk is observed at the ratio 55:45 that of Halford and Sainsbury. Curve above this point can be termed as efficient frontier. Investment Suggestion Risk and return plays an important role for investment in a company. Diversification of risk can be done by investing in different portfolio. As explained earlier efficient frontier details the efficient combinations of risk and return. Based on the analysis of above data the best combination of investment is 65 % on Halfords and 35 % on Sainsbury. As per Markowitz theory the best method of investment is to diversify the portfolio. PART -B Company Overview Sainsbury PLC is one of the biggest retailers operating a total of 890 stores comprising 547 supermarkets and 343 convenience store. It equally owns Sainsbury Bank with Lloyds banking group. Sainsbury are also into property business having joint venture with Land Securities Group PLC and The British Land Company PLC (j-sainsbury.co.uk 2010). Halfords is the UKs leading retailer in Automobile maintenance and accessories. Halford portfolio comprised of 469 stores in UK and Republic of Ireland. Halfords differentiate itself from other competitors by having broad product range, strong brand recommendation, competitive pricing (achieved through scale of purchasing power) and better customer relation (halfordscompany.com 2010). Diversification of Risk Modern portfolio theory explains the ability of investors to diversify the risk. It also suggest that investment on any of the portfolios that lies in the efficient frontier gives maximum return at minimum level of risk. Risk can be classified into systematic risk and unsystematic risk. Systematic risk details how the returns on the share are affected by factors such as business cycles, government policies and change in interest rates. Systematic risk is unavoidable or can be specified as market risk. Unsystematic risk is a specific risk for a particular share or risk of the individual company. Unsystematic risk occurs when the company is performing badly or going into liquidation (Watson and Head 2010). Criticism and Risks of Companies Wecker [online] (2009) states that economist criticises modern portfolio theory for several problems. Firstly they argue that the forecast are inaccurate as it refers to historical data. Based on the historical data the future returns cannot be predicted. Error in estimation of future returns has enormous effects on the Mean-Variance optimization and asset allocation. Secondly the returns are not normally distributed in reality. Thirdly lot of efforts are required to evaluate the historical data. For example, for 10 securities one to need to find out 500 values and analyse about 10 equations. Additionally Watson and Head (2010) explain that practical application of portfolio theory is associated with problems. Practically it is difficult to assume that investors can borrow at risk free rate, since individuals and company are not risk free. Problem exists in identifying market portfolios as it require knowledge of the risk and return on risky investment and their corresponding co rrelation and coefficients. Due to higher transaction cost it will be expensive for smaller investors. Composition of market portfolio changes eventually, these changes shift the risk free return on the efficient frontier. The systematic and unsystematic risk of Sainsbury and Halfords are detailed below. Major incident or act of terrorism, impact of the economic and market risk, environment, sustainability, financial strategy and treasury risks, interest rate risk, foreign currency risk can be considered as systematic risk for both Sainsbury and Halfords. On the other hand new business strategy adopted by the board, reputation risk, potential fraud or dishonesty by employees, health and safety risk , IT and operational infrastructure risk, product safety risk and regulatory requirements particularly in relation to planning, competition, employment, pensions and tax laws   can be considered as unsystematic risks. Reliance on foreign manufacturer, responsiveness to changi ng customer preference, liquidity risk and capital management risk are also considered by Halfords as unsystematic risk (j-sainsbury.co.uk, halfords.annualreport2010.com 2010). Despite of better sales figure the share prices of Sainsbury fell by 2.5 p from 387.1 p, on October 2010 (Lowery [online] 2010). New non executive chairman had been appointed by Sainsbury on October 2010. This change in management strategy can make the sales and share prices rise or fall (advfn.com No Date).Based on the above facts the investors cannot rely on Markowitz theory. Portfolio theory does not comment about systematic risk. The systematic risk such as major events or act of terrorism can make the share prices falls across the world. E.g.: 9/11 terrorist attack made the share prices falls around the world (Kitzer [online] No Date). Portfolio theory relies on historical data and efficient frontier is drawn based on that. Smaller investors cannot rely on this type of analysis for decision making. PART -C Briec et. al (2007) on his management science article recommends nonparametric measurement approach for selecting portfolios having problem in mean, variance and skewness space. Markowitz gave a theory of portfolio management in 1952. Modern portfolio theory balances the risk and return of the shares in a static context. This theory maintains strong dependency on probability distribution and utility function. Diagonal and CAPM models were developed by various economists in order to calculate the risk and returns. Despite of all these tools, Markowitz model is given more preference. Problem with the parametric approach is that, it depends on the mean and variance, of the random variable distribution. It is valid only when asset processes are normally distributed and investors have quadratic utility functions. Many ancient studies prove that generally portfolio returns are distributed normally. Preference is given to positive skewness by many investors. Third derivative of unit y function is related to preference of the positive skewness. When decisions are made frequently and the distributions are compact, only then mean variance approach can be used. Due to the lack of accuracy in the quadratic approximation, limited portfolio decisions with finite time interval should use higher moments. In order to overcome the computational problem associated with the above approach the primal and dual approaches were developed. The primal approach determine MVS portfolio via a multi objective programming approach. The dual approach starts with the measurement of indirect MVS utility functions and determines the ideal portfolio using parameters of risk and skewness. Geometric interpretation of portfolio frontier is difficult to develop, as dimensionality of portfolio selection increases. This leads to difficulties in the selection of preferred portfolio in the boundary points. As there is less importance to represent MV portfolio and there is no way by which MVS po rtfolio frontier can be represented in three dimensions. Distance function can be employed in consumer theory for positioning of bundle of goods with respect to that of target utility level. Using production theory Luenberger (1995) introduced shortage function with respect to distance function. Distance function looks on reducing the input and expanding the output. Thus a distance function represents multidimensional choice set and also positions point closer to the boundary. Generally points beneath the frontier are inefficient. To project any portfolio on the three dimensional MVS frontier, a shortage function can be used. As suggested by management studies, shortage function can be used to project portfolios which show improvement with respect to risk, skewness and return. The following targets are achieved by economist, using shortage function in theory as well as in practice. Its rate portfolio performance by measuring distance between a portfolio and optimal bench mark projection onto the primal MVS efficient frontier. it provides a non parametric estimation of an inner bound of the true but unknown portfolio frontier, it judges simultaneously return and skewness expansion and risk contractions and it provides a new, dual interpretation of this portfolio efficiency distance. Primal approaches are capable of selecting a portfolio among many from Pareto efficient MVS frontier. It can be said that there will be some points on the MVS frontier which will not be favourable from the investors point of view. Recently dual approaches are affected by lack of knowledge, preference for risk and skewness. Global optimization algorithm can be used to solve MVS decision problem. Shortage function looks for investors preferences and can identify best portfolio. By opting a micro-economic tool, such as shortage function will give big advantage in integrating primal and dual approaches. As said by Prakash et.al (2003) and Lai (1991), the MVS p ortfolio and MV portfolio are not the same. They differ from each other in the sense of return, risk and skewness. MVS portfolio will have higher risk with the extend of higher skewness compared to MV portfolio. Also as compared to MV portfolio, MVS portfolio has low returns at the extend of high skewness. The three dimensional MVS spaces shows us a way of portfolio selection approach with the help of tailor expansion. It can be concluded that non-linear programming approach act as a general frame work for any portfolio including traditional portfolio.

Boy in Striped Pajamas Free Essays

BOY IN THE STRIPED PYJAMAS – TOPIC 2 In the novel Boy in The Striped Pyjamas, prejudice and discrimination are shown to have many negative effects on many of the characters such as Bruno, Shumel, Father, Mother and Kotler. In my essay I will explore this idea in relation to the novel. Discrimination, (or in other words negatively putting someone down but not physical hurting or touching them in anyway) is taken place in Boy in The Striped Pyjamas by many different people such as Gretel, by following Kotler’s decisions Gretel is discriminating because she is supporting the Germans belief. We will write a custom essay sample on Boy in Striped Pajamas or any similar topic only for you Order Now Prejudice on the other hand, (is another word for negative physical contact such as kicking, hitting or even killing) in Boy in Striped Pyjamas this is shown by the Father, Hitler. Also Kotler beating up Pavel over he had miss poured the wine. One of the most obvious examples of discrimination in this novel is the concentration camp and the negative effect it has on the Jewish prisoners. The fence that is separating Bruno and Shumel is there for a reason because of race, religion and culture. Shumel is living in fear, depression and is slowly emaciated, not only does he feel sad and isolated it is how he has been treated. In the book the writer says that Bruno looks and Shumel and ‘He stares at the floor and looking as if he was trying to convince his soul not to live inside his tiny body anymore’ he sits there in the rough dirty ground. Pavel is the butler at Bruno’s house and is also a Jew, like Shumel. When Bruno hurts himself on the tire swing he comes across Pavel and learns a bit about him. That he was a doctor but then got taken into the concentration camp and got everything taken away from him his clothes, family and food. Bruno was surprised and puzzled. Later on when Kotler comes to Bruno’s house form dinner Kotler gets mad at a conversation they were having and his temper rises. Kotler ask’s Pavel for wine, he had become weak and was trembling and limping a fair amount, Pavel he spills the wine all over Kotler and end up with Pavel in a serious condition. Despite the more powerful position of the Germans, the discrimination that takes place in the novel affects all the characters negatively. Mother is afraid of the concentration camp being too close to the house and is scared of the terrifying consequences it could, and did lead to. When Bruno and Shumel knew more about each other and realised that they weren’t meant to be friends but they looked further than that. Once Bruno and Shumel became greater friends Shumel asked Bruno a favour, to come over that side of the fence to find Shumel’s father. When Bruno accepts and goes ahead with it they get in trouble and get cramped in tightly by groups of 100’s and 100’s of adults they get sucked into the gas chamber and Bruno and Shumel die. The act of discrimination and prejudice ultimately led to the death of Bruno and Shumel’s life. Father, Hitler and Kotler were the three main prejudice leaders in this novel Father the commandant directing the soldiers to complete the ‘The Final Solution’ led to death for all Jews and sadly Bruno and Shumel as well. Father never felt the same way again he felt guilty that they had taken away so many lives, innocent lives and couldn’t even imagine how so many of them felt like that for most of their lives. Mother wasn’t happy about the decision in the first place and felt unsecure about the whole Out-with thing, she knew it would end up to something bad but did expect it like that. By the end of the novel Father was shocked, distressed and very heartbroken about Bruno’s death and realised that he hadn’t taken much notice of Bruno till then. When the soldiers took him away, because he wasn’t doing his job properly he didn’t care what they did or where going to do all he cared about was Bruno and his Family. Eventually they all moved back to Berlin after a few weeks, which was also not much different because of grandmother, but they couldn’t handle the pain in Out-with. But no matter where they are in the world, they will never forget about Bruno, ever. How to cite Boy in Striped Pajamas, Essay examples

Management- Change free essay sample

Change is important to people because the world and most of the people are changing. If people do not take attention of it and refuse to change, they will be eliminated by the world. People who are fear or hesitate to change must try to step out and start to change now. People can overcome their fear of change by 3 steps; first, they must find out and confront the issues that cause them afraid of change. Then, keep your mind to think the opportunities instead of threat. After that, move on against the fear. In addition, managers must be patient to people in order for people have enough time to make any adjustment for them to adapt new things successfully. Listen to employees and counsels them with ease. To be succeeding in change, managers have to take a lot of issues into consideration. It may be hard for managers to implement change, but here are some suggestions to managers to implement change successfully. First of all, managers should have a good planning of change before they carry out. Queensland government (n. ) pointed out that successfully managing the complexity of change is virtually impossible without a robust plan that is supported by strong project management. Planning is help manager to be aware of what they want to achieve and how they going to achieve it. Secondly, managers should encourage participate. When anticipating making a change, get the team members who will be affected by that change involved early on, find out what make them afraid of change and find out the way to overcome their fear to support change (Stark, 2010). The key to change is to let go the fear—Rosanne Cash (Rick, 2011). To let go people’s fear, managers should often remind people that they are a team and nobody is alone. Managers should also let people understand clearly why they need to change; many people will resist change unless they see that the change is urgently needed and remind them the positive consequences of being change. Then, managers must be able to listen to people’s suggestion. When managers want to apply change, they should not only announce to the people. When managers intending to introduce change, the planning process should involve input from the workforce on the best way to implement the change. People ill be far more committed to the change if they see that their perceptions have been considered and with a sense of ownership over ideas and concepts, they will embrace the change with open arms (Future prospect, n. d). Beside that, managers have to monitor the progress over time and make adjustment as necessary (Hamlin, 2011). Managers must make sure that all the activities are helping the team change effectively otherwise, it is wasting time for people to put so much effort on activities that are not helping them to change. It will make people feel tired for changing and then lose the interest and motivation to involve in change. mployees’ right and control (Davidson et al. , 2009, p. 38). If managers change without consider politic, it may lead people hesitate of change. Thus, causes failure in change. Most of the authors agree that management is connected to another field, because in order for a manager to has a good management. Manager must understand from environment to human resources. Not only those fields which are mentioned above need to be considered, managers also need to consider about the philosophy, psychology and also anthropology According to American Society of Mechanical Engineers (Karmarkar, 2012, p. 1), Management is the art and science of preparing, organizing and directing human efforts to control the forces and utilize the material of nature for the benefit of men. It is consider as science because management problems can be approached in ways that are rational, logical, objective and systematic. Then, it also called as art because although managers try to be scientific as possible but they must make decision and solve problems on the basis of intuition, experience, instinct and personal insights (Davidson, Simon, Woods, Griffin, 2009, p. 21). Thus, people hesitate of change is not an issue that warrants examination only in the study of management, it also in science and art field. Management science has to learn from other fields in order to understand of what people do and why they do it. One of the fields can management learn from is Sociology (Management’s connection to other field of study for principles of management, 2008). Sociology is the study of people in relationship to their fellow human beings (Robbins et al. , 2011, p. 16). The problem of sociology that link to managers is the society changes such as globalisation and cultural diversity. During the days organisation is changing towards globalization, people who are lack of confidence to change in order to compete with others will hesitate to change. Further, different culture have different attitude in their work. For an example, traditional Chinese will think that changing company bring them risk or uncertainty. In general, managers mostly need to understand the affect of social forces in any consideration of management in that society (Davidson et al. , 2009, p. 37). Further, managers have to look into economics. Economics is concerned with the allocation and distribution of scarce resources (Robbins et al. , 2011, p. 16). Economic system and economic conditions are associated in management. During bad economic conditions such as economy recession or depression, most of the people are not dare to involve in any change because they will worry that they loss what they already hold in hand in this suffer period. Thus, managers have to look into the economic condition of that period to determine whether change can be done at that particular period and have an effective result in change. In addition, the relevant field with management is political science. Political are the government institutions, attitudes and policies that affect business (Davidson et al. , 2009, p. 37). Specific topics concern to political scientists include structuring of conflict, allocating power and manipulating power for individual self interest (Robbins et al. , 2011, p. 16). Government nowadays is increasing aware to organisation’s moral and legal responsibility, this forces affect management theory in planning, organisational design, Robert F. Kennedy once said, â€Å"About twenty percent of the people are against any change. † (Stark, 2010) Why people are so afraid of change? By reading the text, the reason that individuals dislike to change is because it will replaces the known with uncertainty, it requires people to do things out of habit, people fear of losing, disagreement with the necessity to change and limited tolerance for change (Robbins, DeCenzo, Coulter, Woods, 2011, p. 193). Besides all these causes, there are more reason about why individuals dislike or afraid of change. First of all, an individual may against towards all new things (Frank Calberg Service, 2007). For an example an individual maybe complaining or refuse to learn new things. People who dislike learning or accepting new knowledge will give a lot of excuse to escape changing by saying that they have no time, no money to pay to attend courses or training (Redman, 2012). Secondly, people are self doubt (Pratt, 2012). Usually people who are self doubt mostly named themselves not good enough, not smart enough, boring, unattractive, and unlikeable, self doubt can lead them to get defensive (Fox, Sokol, 2009). People who are in self doubt situation will defense themselves do not do others thing that they never try before because they don’t have enough confidence to change (Exposing fear of change, 2011). Further, individuals who are fear of change may because they afraid the bad experience in the past repeat in their life (Radwan, 2012). Individuals who had tried to change in their past but obtained a traumatic experience of change that haunts them will affect them feel so afraid of changing. However, Dr Swaim (2011) argued that people do not afraid of change. He claimed that if people afraid of change then how to explain that there is a big changes in election victory of a little known junior senator form Illinious, Barack Hussein Obama, whose 2007based on the slogan â€Å"change we can believe in†. In addition, a psychologist and life coach Dr Suzy Green (n. d) also argued that most of the people find change is scary is just an excuse. She also claimed that individual makes excuse is because they has low confident or failure in past of changing. Secondly, old habits of individuals is ingrained and it is hard to shake off the behaviors that been developed for a long time, she explained that the excuses people make when they are not ready to tackle their behaviors need to be turned around. The movie of The Queen focuses on individual’s change and it pointed out that change request individual to give up the comfortable ways of thinking and acting. Further, comfort zone is the external environment tends to be placid or at least changes are slow or predictable and it has the ability to change (Jarret, 2009, p. 44). In another word, individual is required to give up the habits they used to be in daily life. For individual to leave their comfort zone is sounds scary to them because it will make them feel anxious (Pawlik-Kienlen, 2007). Individual will feel anxious because they afraid of failure, afraid of new things, fear of criticism and fear of discomfort (O’Callahan, 2012). In addition, Jeffery Schwartz and Sharon Begley in the article claimed that it is hard near the core of brain if habits that a person form by training and experience. Further, brain use intense energy in processing new material, this process enquiry brain to work hard to match new material. Chris Berdik (2012) agrees by saying that evaluating every new experience in detail would be tough on our brains and it would hog energy and attention that could be better used elsewhere. Furthermore, accept new things require forming new connections within the brain, which results in greater conscious effort and attention on our part People need to do their work by writing down everything but nowadays everyone is using a computer or laptop to help them finish all theirs works without any delays. Further, nowadays more companies are trying to be globalisation instead of doing business within own country to earn more profit and individual who working in that particular company gets higher salary and maybe get a chance to fly. All these changes to people in an organisation are easily to be seen and it seems like bringing them a lot of benefits. So, is it can be concluded that changing is easy to be achieved for an individual and they love to change without any hesitate? It cannot be judged shallowly, we have to look deep inside before making a conclusion. A deeper discussion will be presented in the following literary works.