Introduction:

Investors must analyze the market efficiently before analyzing their amount into that security and the market. There are mainly 2 ways to calculate the performance of the security and a company which are technical analysis and fundamental analysis. In this report, technical analysis study has been performed over the Computershare limited to analyze the performance of the company and the capital structure of the company. Through this report, it has been found that from which Source Company must enhance the funds so that the cost of capital of the company could be reduced and risk mitigation could also be done.  

Company overview:

Computershare limited is an Australian public company which has been registered into the ASX (Australian stock exchange).  It is an Australian stock transfer company which offers corporate trust, employee share plan and stock transfer services in numerous countries. 20 offices are currently owned by the company including Australia, Ireland, United States, United Kingdom, Canada etc. this company has been founded in 1978 at Australia. Head office of Computershare is at Yarra falls, Victoria, Australia (Computershare, 2017)

Calculation of WACC:

Return on equity:

Return on equity (ROE) is an evaluation technique which is used to examine the profitability position of a firm in context of shareholder equity’s book value. This evaluation is mostly done to investigate the firm’s functions concerning that how the firm uses its amount and investments to enhance the growth in company’s earning.

For measuring the ROE (return on equity) of Computershare, DDM and CAPM methods have been analyzed. Calculations of both methods are as follows:

DDM (Dividend discount model):

Dividend discount model (DDM) explains that the ROE of the Computershare is 4.09%. It explains that the firm would offer 4.09% of net profits to stockholders of the company (Morningstar, 2017).

CAPM Model:

Capital asset pricing model (CAPM) explains that the ROE of the Computershare is 2.45%. It explains that the firm would offer 2.45% of net profits to stockholders of the company (Morningstar, 2017).

Return on debt:

Return on debt (Kd) is an evaluation technique which is used to examine the profitability position of a firm in context of debt’s book value. This evaluation is mostly done to investigate the firm’s functions concerning that how the firm uses its amount and debts to enhance the growth in company’s earnings (Reuters, 2017).

Beta Coefficients:

Study of beta coefficient over Computershare expresses that the company’s beta is 0.1633 from last 5 years (Yahoo finance, 2017). The graph of beta coefficient of index return and Computershare return has been given below.

Risk free rate:

Further, Australia’s risk free rate (Rf) is 2.75% of 10 years (Bloomberg, 2017).  

Growth rate:

In addition, Growth rate of Computershare’s stock has been investigated and found that current growth rate of Computershare is 4% (yahoo finance, 2017).

Weighted average cost of capital:

WACC estimations of the Computershare express about the total equity and debt cost of capital. Currently the WACC of the company is 0.01225 while measuring the total cost of capital, Ke and Kd of the firm has been identified. The Ke and Kd of the company is 2.454% and 0.15%. Consequently, the weight is 0.65 and 0.34 of debt and equity respectively. So, the total Ke and Kd is 0.01127 and 0.00098 (Yahoo finance, 2017).

Calculation of gearing ratios and Difficulties in calculating the gearing ratios:

Gearing ratio is a financial ratio that offers a brief classification of company’s assets and liabilities. These classifications compare the equity and debt of the company. Calculation of gearing ratio of Computershare depict that the gearing ratio is 0.65554. This depict that the debt and equity relationship of the company is 0.655:1 (Morningstar, 2017).

While measuring the gearing ratios of the company, not any particular difficulties have been faced by the company. Entire data related to calculation has easily received from the annual report, Morningstar and yahoo finance. And the formulas have been studied from the books. So it was quite easy to calculate the gearing ratio (Strebulaev, 2007).

Findings:

Capital structure theory is referred to a systematic approach which is useful for managing and financing the business activities. Capital structure theory explores the association of debt financing; equity financing and firm’s market value. In this technique, the growth of the company is analyzed according to the different source of funds. In this study, WACC of the company is 0.01225 while measuring the total cost of capital, Ke and Kd of the firm has been identified. The Ke and Kd of the company is 2.454% and 0.15%. Consequently, the weight is 0.65 and 0.34 of debt and equity respectively. So, the total Ke and Kd is 0.01127 and 0.00098.

Recommendation and conclusion:

Through the above study over Computershare, it has been analyzed that the Computershare’s gearing ratio and total cost of capital are quite competitive. It has been found that the debt and equity ratio of the company is perfect and the cost of capital of the company is also lower. The cost of debt is lower than the cost of equity. Consequently, the weight of debt in the company is higher than the equity of the company. Company is just required to mitigate the risk as the debt part in the company is more than the equity part.

Reflection:

I have performed this study to analyze the stock performance of the computer share. I have found this study very interesting. In this report, every aspect such as beta, return on equity, return on debt, market return etc has been analyzed and on the basis of that, WACC of the Computershare has been analyzed. Further, the study of gearing ratios has been done according to the data from annual report and Morningstar. This report depict about the performance of Computershare and through this report, it has been found that company is just required to enhance the funds from equity to manage the risk. Cost of capital is quite competitive.

References:

Bloomberg. (2017). Australian bonds and rates. https://www.bloomberg.com/markets/rates-bonds/government-bonds/australia on 19^th Sept 2017.

Morningstar. (2017). Computershare limited. Viewed from https://financials.morningstar.com/balance-sheet/bs.html?t=CMSQF&region=usa&culture=en-US on 19^th Sept 2017.

Reuters. (2017). Computershare limited. Viewed from https://www.reuters.com/finance/stocks/overview?symbol=CPU.AX on 19^th Sept 2017.

Strebulaev, I. A. (2007). Do tests of capital structure theory mean what they say?. The Journal of Finance, 62(4), 1747-1787.

Computershare. (2017). Home. Viewed from https://www.computershares.com.au/ on 19^th Sept 2017.

Yahoo Finance. (2017). Computershare limited. Viewed from https://in.finance.yahoo.com/quote/CPU.AX/history?period1=1309458600&period2=1467225000&interval=1mo&filter=history&frequency=1mo on 19^th Sept 2017.