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Dow 30 Case

In: Business and Management

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Dow 30 Case

Table of Contents 1.1 Bordered Covariance Matrix 3 1.2 Determination of Target Return 3 1.3 Solver Parameter 4 1.4 Efficient Frontier Creation 4 1.5 Asset Weights 5 1.6 Weekly Rebalancing 6 1.7 Portfolio Calculations 6
2.0 Firm Analysis: Home Depot 7 2.1 Trends 7 2.2 Analysis of current Macro-economic conditions 8
3.0 Analysis of Return & Benchmark 8
4.0 Analysis of Porter’s Five Forces 10 4.1 Intensity of Competitive Rivalry 10 4.2 Threat of entry for new competition 10 4.3 Threat of Substitutes for Product & Services 11 4.4 Supplier Power 11 4.5 Buyer Power 11 4.6 Closing Remarks 11
5.0 P/E 12
6.0 Individual Company Analysis 12 6.1 Growth ratios: 13 6.2 Gross profit margin: 13 6.3 Financial Strength: 14 6.4 Efficiency ratios: 14 6.5 Management Effectiveness: 14
7.0 Dividend Discount Model Analysis 16 7.1 Calculations 17 7.2 Methodology & Result 17
8.0 Modeling: Free Cash Flow to Firm & Free Cash Flow to Equity 18
Appendix A 22
Appendix B 25

1.0 Asset Allocation Model
1.1 Bordered Covariance Matrix
The chapter 7 in class spreadsheet model was a strong foundation that helped teach the group how to find an optimum portfolio. To create our portfolio model, a bordered covariance matrix and an efficient frontier was developed to find our minimum variance portfolio in the DOW 30 trading case. A screen shot of our model developed on October the 8th, 2010 is in the following figure 1 example below:
Figure 1 Notes: * Total Weight = sum of individual security raw weights, which must equal to 1 * Return = sumproduct of the raw weights and expected returns * Standard Deviation = the square root of the individual security sumproducts(raw weights and expected returns) * Slope = return/standard deviation * Constraint: 1. Maximize

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