Assignment 1

Financial Management by: Sir Yousuf Saudager

Group Member: Vishal Malhi (14951), Sardar Hamza Khan

Risk and Return Analysis of Pakgen Power Limited

Beta Analysis:

The beta for Pakgen power is 19% which is quite higher than the market beta. This means that
the firm specific risk or systematic risk for pakgen power is very high compared to the market
that can give investors slightly low confidence about pakgen.

Hubco has a much higher beta that can create a negative impact for the investors as it will create
a higher risk for the market and the stock in turn. This will result in investors being slight risk
averse from the stock hence might impact the market stockholders adversely.

Nishat power has a low beta and is a good stock comparatively. It will benefit the investors as it
is more of a risk averse stock which means that this will provide investors with higher return.

Kohinoor power has a lower beta which is good for the market and investors and Compared to
the other stocks it also provides a higher return and gives a minimal edge for the investors in
comparison to Nishat.

Volatility of Stocks

Pakgen ltd has a beta of 0.19, which depicts that stock prices increase at lesser rate than market
rate as it is between 0 to 1. Which shows that the stocks are less risky. Same behavior is shown
by the by the Tri-star limited with a having beta of 0.22, HUBCO with the beta of 0.62 and
Kohinoor power ltd with the beta of 0.08. This is the further explained by the Correlation
coefficient of above stocks which is very low. While Nishat power ltd has the beta of 0%, which
shows the risk-free ness of stock as the market rates will not affect the company’s stock prices as
because of negative correlation (-0.08) between stock and the market.

This overall shows that the volatility of the Pakgen’s stock is very low.

Average Return Analysis:

Pakgen Power is a stock with high risk and low return, this stock doesn’t seem feasible for the
investors as its performance factor in the past of having a consistent record started to decrease.
Currently the stock is performing moderately and not a good stock to invest in. This is because
the stock is volatile and the beta is slightly higher, this may give a signal to the investors to not
invest as this stock could have a losing performance in the future.

The overall stock performance of Hubco is not well as the avg return of the stock is lessening as
the stock price is declining. As it a gas exploration company the overall trend of the market
depicts that the stock is losing. Moreover, the return is slightly higher than the market risk which
shows it is not a good stock to invest in right now. The future volatility of the stock can be told
by the beta which shows that the systematic risk is lower than market risk having a beta of 0.64
that shows a positive sign as the market is slightly riskier than the overall stock performance.
The stock could perform well in the future as the performance of the market is volatile that could
lead HUBCO to perform better in the future.

Nishat Power is a stock with less risk and comparatively a higher return as the stock performs
better. As compared to other power generation plants, Nishat Power is also leading a project for
its energy conservation that could lead the stock in the market. The return is also comparatively
higher as compared to the risk being a good asset in the market with less volatility in the future.

Kohinoor Power is also relatively a stock with moderate risk and a higher return. Its past trends
are also stable not having much fluctuations in the stock market. Investors are most interested in
this stock because of they have less to loose as it is a stock that is consistent with its stock price
and provides investors with a stabilized rate of return. However, the betas of the overall stock is
high being at 8% that depicts that the firm risk is higher than the market risk. Investors should
focus more on the stock changes rather than the overall market.
Relative Riskiness:

The Standard Deviation for the daily returns of Pakgen Limited is 0.15, On the other hand, the
Standard Deviation for the daily returns of KSE-100 is 0.7 This suggests that the variation in the
daily returns of the stocks for Pakgen Limited is lesser than the variation in the daily returns of
the stocks of KSE-100 companies on average. A lesser Standard Deviation suggests that Pakgen
is, compared to the index, a less riskier investment. The beta of Pakgen’s stock also suggest that
the stocks of Pakgen are less riskier as the it is nearer to zero.

Linking Stocks’ Market Performance to Accounting Performance: -

We will now link the performance of the stocks of Pakgen Power Ltd to the company’s
accounting performance. It is believed that a company that is profiting from its product or service
is more likely, but not guaranteed, to see the price of shares of a company stock rise. By
comparing data present in Annual Financial Statements to data of Pakgen Power Limited’s
stocks, we will see to what extent this statement holds true. Data for 2021 will not be included as
Financial Statements for 2021 have not been reported as of yet.

2017: -

Looking at the Profit and Loss Statement for Pakgen Power Ltd for 2017, we can see that the
total Profit (after Taxation) for 2014 is 150% more than what it was for the previous year. One
would hence assume that the Earning Per Share (EPS) would increase due to greater amount of
Profit. We however, an see that the EPS for 2017 is Rs 3.53, whereas for the previous year
(2016), it was Rs 1.39.
2018: -

Looking at the Profit and Loss Statement for Pakgen Power Ltdfor 2018, we can see that the total
Profit (after Taxation) for 2018 is 13%% more than what it was for the previous year. This is
reflected in an increase in EPS to Rs 3.99 from Rs 3.53.

2019: -

Looking at the Profit and Loss Statement for Pakgen Power Ltd for 2019, we can see that the
total Profit (after Taxation) for 2019 is 96% more than what it was for the previous year. This is
reflected in an increase in EPS to Rs 7.82 from Rs 3.99.

2020: -

Looking at the Profit and Loss Statement for Pakgen Power Ltd for 2020, we can see that the
total Profit (after Taxation) for 2020 is 51% more than what it was for the previous year. This is
reflected in an increase in EPS to Rs 11.86 from Rs 3.99.