Discuss about the Value Measurement And Mandated Accounting Changes.
The Monetary Authority of Singapore is the top most banking authority in the country and carries out all the functions in relation to management of the finances and the exchange rates for the country. It is responsible for the implementation of the monetary policy in the country and helps in overall management of the banking system in the country. It helps in retaining the liquidity of funds operating in the various financial institutions in the country of Singapore (Abbott & Kantor, 2017). It helps in the management of the day to day operation of the banking functions and makes sure that the economy remains stable with help of the same.
The Federal Reserve system is the top most banking system in the country, that is responsible for making the economy more stable by forming effective rules and regulations for management of the funds in the country. It is the central banking system and has various layer in its executive set up that are responsible for management of the funds of the nation and formation of rules for management of the exchange rates. It is an independent body and the policies formed by it requires no approval from other parties, its decisions are final and applies all through the country on all the financial institutions functioning within it (Maynard, 2017).
The main differences between the macroeconomic policies of the two top most regulatory bodies of the world are –
The interest rate structure of the Singapore Exchange is particularly different and unique from all other companies and the interest rates follows a very different approach in comparison to other companies. In case of Singapore, the overall rate structure shows a very lucid movement as per which it can be said that different term based loans under different scenarios will yield different results for the company (YUAN, 2018). A term structure model of the interest rates showcases a different approach to the various assets and liabilities in the economy, the present level of liquidity that is present, the overall asset management of the country and the presence of the various market risk can be analyzed accordingly with the help of developing a term structure model of the various interest rates that are present in the country.
In case of Singapore we see that short term, loans are more expected to fall as and when the economy falls and the curve yield helps in providing the information with relation to economic activity and the future inflation that is there in the country. So it can be said that different securities like government yield bonds, debt securities, equities etc, functions differently when it comes to deliver the same on the time yield curve. For making one such graph, various data from the exchange sector is taken and the same is then incorporated in an excel file to see how they function when it comes to a time yield curve (Lee & Nobi, 2018). A time yield curve is a type of chart that plots the different interest rates of different securities and then analyze the same based on different maturities that they have. A time yield graph based on the data that has been taken from the Singapore markets has been taken and represented below. The Y axis shows the different rates of interest of the stock and the X axis shows the different maturity periods of these stock, the same is plotted.
X = Different maturity periods of the stock.
Y = Different rates of interest of the stocks.
The stocks have been taken from the Singapore Stock Exchange and the different stocks that are there.
The non-banking financial institutions in Singapore, are not governed by the banking and financial authorities and they do not have full banking license. They provide banking related facilities like diversion of risk as different stocks have different risks so they help in validating the overall risk involved, investment, pooling of resources as people can invest their funds in different stocks through one medium etc. They help in strengthening the economy by providing various ways of transferring the capital and converting the same to savings. They provide back hand support to the economy during failing times and helps in maintaining the level of liquidity that is important to keep the economy functioning and supports during crucial times.
The major advantages with regards to NBFC are –
So, in a company like Singapore, these institutions plays a major role, they help in keeping the economy stable, helps in wealth generation, helps in management of the funds that the investors has, helps in reducing the overall associated risks and keeps the economy less prone to volatility.
The Hong leong finance started its operation in 1963, and is a big conglomerate that operates out of Malaysia. The company controls many public listed company that is involved in many activities like manufacturing, distribution, construction, financial services etc. The shares of the same are listed on various stock exchange that includes Hong Kong, Singapore, Europe etc. With more than 50 years of experience the company has been able to support many local companies with customized financial solution and has helped them in procuring a place in the business of finances and capital management. In this assignment we will discuss how the company is funding its operations, what are its major sources of finance, the way the company deals with it growth and development and the overall valuation of the company based on various parameters would be done (Chariri, 2017).
Presently the company is funded by equity and deposit liabilities. The main liquidity arises on management of the net asset flow from the loan assets and maintaining other deposit liabilities at various point of time. So, all these affect the major sources of financing for the company. The company has more inflow of resources from secured sources and all the money is invested into unsecured sectors where the risk of loss is much more.
Based on the same it can be said that the company should opt for other sources of financing and reduce the dependence on deposit liabilities, in a way that the overall liquidity position becomes stable and should also try to take some risk, by involving debt funding that will help in better rotation of funds for the company. It is also important for the company to opt for such financing, in case it opts for expansion in the future and aims to grow its business and make it more stable. It can also be seen that year after year these deposits are getting lowered, so the credibility of the same is also getting reduced. Also giving the fact that the company is an NBFC, and there are different set of rules that governs the company, it is important for it to maintain some level of capital base to be in operation. So, for this it is important that going forward the company should aim to diversify its operations and opt for other sources of financing, rather than following the traditional routes and make its portfolio more stable (Iasplus, 2017).
Whie going for funding the aim of every company is to make sure that the stability level is achieved and risk is reduced , so that going forward the investors can be given good return in terms of the money that they are putting in the company. Thus the same goes for this company and it should also try to diversify its investments, go for more tried routes, so that the returns are handy in the end. And in case of NBFC, the rules are very different from other companies and therefore more resilience should be there on better funding that will help in generating more revenue for the company.
The valuation of the company based on CAPM, can be done by considering the net return that the investor is expecting and what the company is providing taking in consideration the risk-free rate of return and the market rate of return on the shares of the company, along with the prevailing beta coefficient (Chiapello, 2017). The formula for valuation by CAPM is=
E(R) = R(F)+B(Rm-Rf)
As per the financials of the company,
Rf = 1.8%
ER = 4.5%
Rm = 1.2%
Therefore, Beta of the company would be = 0.45
The overall net return that the shareholders will receive from the company would be 4.5%, and the same can be divided with the total shareholdings of the company,
The total shareholding of the company is 44.5million, dividing the same with 4.5% we get the total value as = 988million.
Based on P.E ratio, the prevailing P.E ratio is 14.0, the total EPS of the company is 0.19 per share, total shareholdings are 8.8 million. Therefore, the current share price would be
Price/earnings would be = P.E ratio
P/0.19 = 14
Price = 2.66
Therefore, total value of the shares would be = 8.8 *2.66 = 23.408 million.
From this valuation, it can be judged whether the company is functioning on a level that is required by the market and the investors can also judge whether or not they will get due returns for their investments. It helps them in analysing the financial position of the company, and compare the same with their peers.
The EPS is total earnings divided by the total number of shares, so that is equal to 0.19, the total number of shares is equal to 445 million. So the total number of assets is 12543, this divided by the shares is equal to = 2.81 is the NAV. So, when we do comparison from prior years we see that:
ACTUAL |
ACTUAL |
ACTUAL |
FORECASH |
|
2015 |
2016 |
2017 |
2018 |
|
EPS |
16.41 |
11.96 |
11.24 |
19 |
DV/SHARE |
||||
NAV |
3.8 |
3.82 |
3.91 |
2.81 |
Conclusion
There is an overall increase in the total EPS for the company, and this is because that the economic conditions are stable and are favoring the overall growth opportunities for the company, the company has also diversified into other regions and this has also contributed in increasing the earning per share of the company. As we see that the expected returns are less than what the shareholders are receiving, so this means that the overall demands of the shareholders of the company are getting fulfilled and they are getting more than what they are expecting, but this is unstable given the fact that the overall funding of the company come from very deposits and that makes it more volatile to market risk (Alexander, 2016). The NAV is less in comparison to recent years, this is because there has been a decrease in the overall deposits that the company is expecting and the way same is getting invested. So, a decrease in the deposits is a decrease in the net revenue for the company and that in turn is decreasing the net asset value. In a way it is good, that the company is diversifying to other sources of funding, but the management should take steps to make sure that in times to come, the overall valuation is more stable and there are not so much discrepancies in comparison to previous years (Anon., 2017).
References
Abbott, M. & Kantor, A., 2017. Fair Value Measurement and Mandated Accounting Changes: The Case of the Victorian Rail Track Corporation. Australian accounting Review.
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.
Anon., 2017. Explaining auditors’ propensity to issue going-concern opinions in Australia after the global financial crisis. Accunting and Finance, pp. Carson,E;Fargher,N;Zhang,Y;.
Cayon, E., Thorp, S. & Wu, E., 2017. Immunity and infection: Emerging and developed market sovereign spreads over the Global Financial Crisis. Emerging Markets Review.
Chariri, A., 2017. FINANCIAL REPORTING PRACTICE AS A RITUAL: UNDERSTANDING ACCOUNTING WITHIN INSTITUTIONAL FRAMEWORK. Journal of Economics, Business and Accountancy, 14(1).
Chiapello, E., 2017. Critical accounting research and neoliberalism. Critical Perspectives on Accounting, Volume 43, pp. 47-64.
Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), pp. 617-632.
Iasplus, 2017. www.iasplus.com. [Online]
Available at: https://www.iasplus.com/en-ca/projects/assurance/research-projects/iaasb-revisions-to-isa-315-identifying-and-assessing-the-risks-of-material-misstatement-through-understanding-the-entity-and-its-environment-research
[Accessed 07 december 2017].
Kusolpalalert, A., 2018. The relationships of financial assets in financial markets during recovery period and financial crisis. AU Journal of Management, 11(1).
Lee, J. & Nobi, A., 2018. State and Network Structures of Stock Markets Around the Global Financial Crisis. Computational Economics, 51(2), pp. 195-210.
Maynard, J., 2017. Financial accounting reporting and analysis. second ed. United Kingdom: Oxford University Press.
Vieira, R., O’Dwyer, B. & Schneider, R., 2017. Aligning Strategy and Performance Management Systems. SAGE Journals, 30(1).
YUAN, T., 2018. The Prospect for RMB Becoming One of the Two Center Currencies of the Dual-Center Global Financial System. The Dual-Center Global Financial System, Issue 1, pp. 83-91.
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