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14 views

Assign H

HOSPITAL RELATED

Uploaded by

lakshmikanth.v
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Q) Estimation and Analysis Systematic Risk (Stock return response to change in

market index return). This assignment will involve extensive modelling on excel.
(b) Estimation and analysis of Weighted Average Cost of
Capital (WACC). Measuring riskiness of the business. with extensive modelling on
excel.

 Step 1
(a) Estimating and Analyzing Systematic Risk (Beta)
Modeling in Excel:

Here's a guide to estimate and analyze systematic risk (beta) for a healthcare
global organization using Excel:

Data Collection:

1. Stock Returns:

° Collect historical monthly (or quarterly) stock returns for the healthcare
organization.
° You can find this data from financial databases like Bloomberg, Reuters, or
directly from the company's website.

Explanation:

2. Market Returns:

° Collect historical returns for a broad market index relevant to the healthcare
sector.
° For a global organization, consider a global index like MSCI World Index.

 Step 2
Calculation:

1. Calculate Excess Returns: Subtract the risk-free rate (e.g., government


bond yield) from both stock and market returns for each period.

2. Run a Regression Analysis:

° Use the Data Analysis tool (in older versions) or Regression analysis
function in Excel.
° Set the dependent variable (Y) as the healthcare organization's excess
return.
° Set the independent variable (X) as the market excess return.
3. Interpret the Results:

° The slope coefficient of the regression line represents the beta of the
healthcare organization's stock.
° A beta of 1 indicates the stock's volatility aligns with the market.
° Beta > 1 suggests the stock is more volatile than the market, and vice versa
for beta < 1.

Explanation:

Further Analysis:

• Analyze the R-squared value from the regression. A higher R-squared


indicates a better fit between market movements and the stock's returns.
• Consider using a time-series model like GARCH to capture potential volatility
clustering in the healthcare stock's returns.
Additional Tips:

• Use a decent sample size (e.g., 5+ years of monthly data) for a more reliable
beta estimate.
• Be aware that beta is not constant and can change over time. Regularly
update your analysis with new data.

 Step 3
(b) Estimating and Analyzing Weighted Average Cost of Capital (WACC)
Modeling in Excel:

Data Collection:

1. Cost of Equity:

° Use the Capital Asset Pricing Model (CAPM) with the estimated beta from
part (a) and a risk premium relevant to the healthcare sector.
2. Cost of Debt:

° Collect the company's current pre-tax cost of debt, which can be found in
financial statements or annual reports.
3. Capital Structure:

° Determine the proportions of debt and equity financing used by the


company. This information can be found in the company's financial
statements or annual reports.

Explanation:

Calculation:

1. Calculate WACC:

° Use the following formula in Excel:


WACC = (Cost of Equity × Equity Weight) + (Cost of Debt × Debt Weight) × (1
- Tax Rate)
° Equity Weight = Market Value of Equity / (Market Value of Equity + Market
Value of Debt)
° Debt Weight = Market Value of Debt / (Market Value of Equity + Market
Value of Debt)

 Answer
Further Analysis:

• Analyze how changes in cost of equity, cost of debt, or capital structure


affect the overall WACC of the company.
• Compare the WACC to the company's historical cost of capital or industry
benchmarks.
Additional Tips:

• Consider using a risk-free rate relevant to the company's currency.


• If the company has different types of debt with varying interest rates,
calculate a weighted average cost of debt.

Q) Estimation and analysis of working capital requirement based on operating cycle.


including extensive modelling on excel and basic simulation.

 Working Capital Requirement Estimation and


Analysis based on Operating Cycle with Excel
Modeling and Simulation

Understanding the Relationship:


Explanation:
A company's operating cycle directly impacts its working capital needs. The
operating cycle represents the average time it takes to convert raw materials
into cash from sales. A longer cycle signifies more cash tied up in inventory
and receivables, leading to a higher working capital requirement.

 Step 2
Estimation Steps:
1. Identify Components:
Explanation:
o Current Assets: Inventory (Raw materials, Work in progress, Finished
goods) & Accounts Receivable
o Current Liabilities: Accounts Payable
2. Calculate Holding Periods (in Days):
Explanation:
o Inventory Days: (Average Inventory / Cost of Goods Sold) ×365
o Receivables Days: (Accounts Receivable / Net Credit Sales) ×365
o Payables Days: (Accounts Payable / Cost of Goods Sold) ×365
3. Operating Cycle:
Explanation:
o Operating Cycle = Inventory Days + Receivables Days - Payables
Days

 Step 3
 Answer
By understanding the relationship between the operating cycle and working
capital requirements, businesses can create a financial model to estimate
their needs and perform simulations to assess the impact of different
scenarios. This proactive approach helps in managing cash flow effectively
and maintaining financial stability.

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