Assignment 6

Institute of Management Sciences, Peshawar

Assignment No.6

Marks 4

Industry Analysis


Instructions

A.    This assignment must be done individually and submitted before the start of your final exam.
B.     I shall not accept any assignment once your final exam starts
C.     Direct copy past from internet will not get you any mark. Use your own wordings
D.    Assignments similar in contents, format, and explanation, will not get any mark
E.     Only printed assignments will be accepted
 

ASSIGNMENT
 
STEP 1: Return and Risk Calculation
 Select any 4 industries of your choice from the zip file and calculate return on equity (Operating profit before taxes divided byEquity) for the selected industries in each of the eight years. There are two files for each industry, one file containing data from year 1999 to 2004 and the other from 2001 to 2006
 
Step 2: Highlighting Inter-industries Returns Dfifferencies
Give logical explanations for the differences in returns of different industries on average basis and on yearly basis. Specifically you are required to tell why return in a given industry, for example, paper industry is higher in the year 1999 and 2000 or on average in all years as compared to other industries. Note: you will not get any mark for simply stating what increased ordecreased, remember to give reasons for returns being higher or lower in a given industry in comparison to others. For example, paragraph like the following one with no explanation as why returns showed improvement are totally un-acceptable

The textile industry had been showing positive returns for the year 1999-2006. ROE textile industry is showing a handsome improvement especially in year 2000-05 and it has increased abruptly from 1.36 to 8.38% then showed a bit decrease but still it is positive. In year 2000 textile industry has the highest ROE as compare to other industries
 
What you are expected to do in this assignment can be exemplified with the following paragraph:

ROE of cement industry gradually improved as the construction activity picked up, that was partially fuelled by lower interest rates and increased purchasing power of people. People took loans at reduced rates to supplement their incomes and build houses. Moreover, there was unprecedented increase in export of cement to Afghanistan, India and other countries. Government also spent huge sums of money on developmental projects that swelled the demand for cement…….”
 
You may consult these pages  for analysis or search Pak Gulf Economist to know the different characteristics of industries in Pakistan and the reasons for the better or poor performances in different years. Factors affecting industries returns can be economic factors, political factors, industries costs and demand structures, nature of products being produced by different industries, government regulations favoring or taxing different industries etc.



Step 3: Discussing Standard Deviation
Calculate the risk in the returns of each industry by calculating the standard deviation and tell why SD of some industries is higher than others. Again remember do not mint words, rather give reasons. Statements like the following are totally unacceptable

The above table shows that the risk level of the Jute industry is high, followed by Power and Chemical industry which exhibit same trend. That shows that the returns of these industries should be high. While the risk level of Cement and Textile industry is low and their returns are low as well”
 
A good example of risk analysis of your selected industries can be as follows
 
“Standard deviation of cement industry is quite high because the return of this industry fluctuates more with the increase or decrease in economic activity and income level of people. The years 1999 to 2002 witnessed low GDP growth and poor purchasing power of people, this is why ROE of cement industry remains depressed, as the economic activity showed improvement, so did the ROE of cement industry. The wide fluctuation in the reutn of cement industry due to economic activity is a primary source of SD being high.”
 

Note:
The above examples are only for guidance, you should not copy and paste them into your assignments, rather do your own analysis. And direct copy past from internet will not get you any marks. Use your own wordings
 
Data for the Assignment