Discuss about the Finance on CAPM for Empirical Investigation.
The purpose of this report is to develop a strategic plan for a financial project based on Ghana stock exchange. The strategic plan of the business involves the explanation of the purpose, vision and mission. The aim of strategic management is to establish a feasible plan for business operations will aim to improve the long and medium term objectives of a particular organization. The mission and vision values set for the selected company looks forward to improve the overall milestones and objectives set for the company. The strategic objective also acts a platform and basic set of rules for competing with the market forces and be among the top set of companies for the purpose of being a market leader in a particular segment. The various analysis conducted on the financial part is based on the evidence from five scholarly resources. The name of the organization selected for the purpose of evaluation is “Kantanka SUV”. It is a car making company listed under Ghana Stock exchange (WORK et al., 2014).
The latter part of the report aims to provide a financial analysis to compare the Chen- Zhang, three factor model and Fama-French three factor model. The result comparison is based on the empirical investigation of both the three factor models on the basis of quantitative analysis. The purpose of this evaluation is to test the superiority of the models to predict the returns of a particular portfolio particularly in the scenario of the Ghanaian Stock exchange. (Swayne et al., 2012).
Mission Statement of Kantanka SUV
“We at Kantanka SUV aim to provide economic, safe and environmental friendly vehicles which can be afforded by people of all categories and set an example for production of world class. The cars are electronically made to reduce environmental emission. The company aims to produce cars at a range which includes both electric saloon and electric four weeler driverss.”
Vision Statement
“Our innovative strategic ideas will help Kantanka SUV motors as a leading brand in the segment of economic and electronic cars models. The various strategies at Kantanka SUV will aim to showcase the rapidly improving economic, social and ecological environment and add to the overall development of strategy formulation of the company in future. The outcomes of various strategies will help the company to prepare itself for a long-term goal.”
The milestones of the company include the following highlights:
The company aims to be the top manufacturer of electronically boosted car in order to reduce the emission level.
The company aims to set a record by being on the top of the list that is publishes its achievement in sports car magazines such as Octane magazine, overdrive, top gear, luxury auto direct, auto express and automobile magazine.
To be among the best brands of the car makers who are known for providing and manufacturing environmentally safe and sound models of car which will be based on providing more mileage and lesser amount of pollution In this way the company will be able to contribute in a positive a way to the society (Cova et al., 2015)
The company also aims to be among the top contender for maintaining the lower level of prices for all types of car model.
Katanka Suv want to be among the well known contenders for being able to present the most environmental effective car models by introducing such varieties of cars models which will be operated on battery and electricity charging. In this way the company will be able to reduce the level the pollution in the society and responsible for production of more cost effective car models. (Vervaeke & Calabrese2015).
The company also aims to fulfill the corporate social responsibility to execute social goals of the corporation. In order to achieve this objective, the company aims to reduce the waste involved in the manufacturing process and also dispose them in proper conditions for the welfare of the society (Drauz, 2013).
Katanka Suv aims to achieve the highest manufacturing standards by reducing the rate of emission involved in environmental by manufacturing cars which will be electronically powered. This can be achieved by application of various techniques such as six sigma which aims at quality of the manufacturing process of the company and significantly reduce the rate of error of the in the production of the car parts of the company (Fawcett & Fawcett, 2013)
The long-term goal and strategy of the company also includes emerging as market leader as a producer for the best type of engine in order to reduce the dependency on fuel and using of green technology in all the car models. Present objective of the company aims at incorporation of Euro 5 engines in all the models manufactured at Katanka Suv (Maniak et al., 2014).
The milestone of the company also involves setting a competitive price based on the present marketing pricing standards in the car models. The main competitor of Katanka Suv includes carmakers such as Honda, Hyundai, Ford, Kia, Toyota, Volkswagen and Suzuki. The various types of corporate strategy framed by the company are aimed to compete with the above mentioned competitors (Balcet et al., 2013).
The main objective of the company is to be among the top car makers for the purpose of developing cars which will be powered by long lasting batteries and will be electronically boosted by the manufacturer for the both economic and both premium class of cars, which can be afforded by all categories of the people in the society (Chorafas, 2015).
The portfolio test of model is based on the outcomes of two test one being the Fama-French three factor model and the other model being the Chen- Zhang, three factor model. According to the regression analysis of the Fama-French three factor model. The average slope of the market was observed as 0.758391 and this stated the excess return associated with the portfolio. The slopes of the associated BTM are significant at 0.1%, and the portfolio significance level has been observed as 1%. The average of the adjusted R-square value has been observed as 0.5567 and it had been also observed that BL portfolio had the highest R-square 0.626465. The overall analysis shows that larger firms with lower amount of BTM (Book to market ratio) are better explained by the FFTFM in the compare to the smaller firms with higher amount of BTM. The three factor model take into consideration the factors such as market factor, size of the firm and BTM factor while calculating the capital asset pricing model. The Fama-French three factor model takes into consideration the three factors such as market factor, size of the firm and BTM factor hence it is more suited for determining the share price. (Acheampong & Swanzy 2015).
The Chen- Zhang, three factor model has shown the variation in the share prices by market forces up to 8%. The beta value shows the risk free rate of the share value. The coefficient of the risk free rate has been observed as 0.008387416. The alpha value shows the fluctuations in the risk factor of the portfolio, this value has been observed as 0.254494693. The intercept shows the range of risk involved. The intercept is shown in the middle range of the upper and lower value in graph.
Conclusion
The various strategies set by Spark Motors are focused to fulfill the long-term goals of the company. The overall analysis of the capital asset pricing model shows that the various types of multi factor factors used in the Fama- French model is more appropriate model for the purpose of evaluation of capital asset pricing model, which is oriented to provide the details on the three important factors such as- market factor, size of the firm and BTM factor and proved itself for being a more valid model for predicting the future returns.
Reference List
Acheampong, P., & Swanzy, S. K. (2015). An Empirical Investigation into the Applicability of Fama-French Three Factor Model in Explaining Portfolio Returns: Evidence from Non-Financial Firms on the Ghana Stock Exchange. International Journal of Financial Research, 7(1), p75.
Balcet, G., Commisso, G., & Calabrese, G. (2013). Structuring and restructuring Fiat-Chrysler: can two weak carmakers jointly survive in the new automotive arena?. International Journal of Automotive Technology and Management, 13(2), 183-197.
Chorafas, D. N. (2015). Ethics and Efficiency in Manufacturing and Services. In Business Efficiency and Ethics (pp. 225-246). Palgrave Macmillan US.
Cova, B., Pace, S., & Skålén, P. (2015). Marketing with working consumers: The case of a carmaker and its brand community. Organization, 22(5), 682-701.
Drauz, R. (2013). In search of a Chinese internationalization theory: a study of 12 automobile manufacturers. Chinese Management Studies, 7(2), 281-309.
Fawcett, S. E., & Fawcett, A. M. (2013). The Definitive Guide to Order Fulfillment and Customer Service: Principles and Strategies for Planning, Organizing, and Managing Fulfillment and Service Operations. Pearson Education.
Maniak, R., Midler, C., Beaume, R., & Pechmann, F. (2014). Featuring capability: How carmakers organize to deploy innovative features across products. Journal of Product Innovation Management, 31(1), 114-127.
Swayne, L. E., Duncan, W. J., & Ginter, P. M. (2012). Strategic management of health care organizations. John Wiley & Sons.
Vervaeke, M., & Calabrese, G. (2015). Prospective design in the automotive sector and the trajectory of the Bluecar project: an electric car sharing system. International Journal of Vehicle Design, 68(4), 245-264.
WORK, D. T., SPEND, E., LARGE, A., & PLAN, B. S. (2014). Making Human Resource Management Strategic. Human Resource Management, 38.
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