1.

0 Introduction
This report is about to suggest the investor deal with the risk and return of their
investment on the corporations equity of. The report will be written to give advice to
individual investors. The report will analyze both risks related with investment on
equity and risks of affecting investors to gain investment income that. Moreover,
CAPM model will be analyzed to investors. At last the report will provide advice to
the investor which can enable them to manage their investments.

2.0 Types of risks

There are main two forms of risk for the ordinary companies that may influence the
following financial performance of the company. There are two forms of risk:
the non-systematic risk of the enterprise
the risk is the systematic risk of the whole market

The first type of the risk is the non-systematic risk of the enterprise.
This risk is always relate to the specific business operation of the certain enterprise
which are risks posed by entitys action different from others. The non-systematic
risks can be classified into the credit risk, financial risk, management risk, liquidity
risk, and operational risk. The non-systematic risk is different from the investors can
escape these risk by following the actions of the company and keep abreast of all
news and rumors in the stock market. In this case, as a primary lender this enterprise
would faces credit risk which is an inherent component of its business operation of
lending and asset purchase while their current corporate bonds that listed on the

London Stock Exchange Order Book for Retail Bonds is also used to get the
additional working capital for the ordinary business operation (Paulsson, J., 2013).
The methods that used by these financial enterprises to prepare the negative effects of
interest rate movements also include the asset portfolio and the introduce of the long
term corporate bonds to the current capital structure.
.

2.2 Systematic risk

The second is the systematic risk of the whole market.

The systematic risk also known as the market risk that would affect the whole market
such as the Great Depression and the European Sovereign Debt Crisis. The risk
cannot be totally avoided and also cannot be predicted. For the ordinary companies, a
further deterioration and potential recession of the whole macro-economic
environment may bring up the adversely effect to the all aspects of the ordinary
business operation. The adverse effect of the deterioration and potential recession
might increase the risk of the large number of borrowers and decrease their capability
to repay the loans, which may in turn increase the whole costs of a radical financial
structure or limit the companys further ability to finance in the market. The adverse
changes arising from systematic risks such as the current Financial Crisis can reduce
the ability of recovery and assess of the lenders assets. Then changes of rising
benchmark rate of the central banks may adversely affect the enterprises net income
and profitability. Through the systematic risk cannot be eliminated, the enterprises can
rely on the diversification, hedging or the right asset allocation to make the
preparation for the system risk.

3.0 Advices of managing risks

3.1 Important Ratios analysis
The aim of the investors who purchase equity in the form of shares is to get the return
for an economic added value. Also, investor can reduce or avoid risks through analyze
some key ratios. The return on their investment mainly refer to the cash received as a
distribution of free cash flow such as the dividends and the capital gain made on the
resale of the shares like the cash profit.

3.2.1 P/E ratio

Earnings ratio (P/E ratio) is a valuation ratio of a companys share price compared to
its earnings of per share. The ratio demonstrates that ithe higher P/E ratio company is,
the higher risky the share is (Arnold, J. and Turley, S., 1996). Then the formula of the
Price/Earnings (P/E) Ratio is as following formula.

P/E = Market Value per Share / Earning per share(EPS)

During the period of the year ended 30 September 2013 the Groups profits before
taxation increased by 10.4% to 105.4 million (2012: 95.5 million). The earnings per
share of the enterprise increase up 17.4% from 24.2p in 2012 to 28.4p in 2013. In this
case the company with a Market Value per Share of 3.68 and an EPS of 48.4p the
P/E ratio of the enterprise would result (3.68 / 48.4p = 7.6).

The P/E ratio climbed indicates that the increase in risk of investment. Higher risk
may bring high return but also bring high loss. Investor may look down of the
company. There is an advice for investor that they have to face the risk in right way
and deal with the potential risk.
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3.2.2 Dividends yield

This ratio shows the investment income in the form of dividend is in basis of shares
market price. High dividend can attract investors. The formula of the Dividends yield
is :
Dividend Yield = annual dividend per share / price of stock per share

In the case, annual dividend of corporation is 7.2p and the stock trades at 3.68, the
Dividend Yield is 2%. (7.2p / 3.68 = 0.02). According to the newest dividend
policies from Paragon-group internet that was approval at the Annual General
Meeting on 6 February 2014, the dividend will be paid on 10 February 2014, by
reference to a record date of 10 January 2014.

It shows that the dividend paid for ordinary shares per share of the Paragon group
increased up 20% from 6.0p in 2012 to 7.2p in 2013. It is obvious a increase on
dividend paid that investors satisfy the performance of the company. There is an
advice for the investors that they should select company of bring potential benefits
and also can enhance investors faith to earn more profits from dividend payment.

3.2 Capital Asset Pricing Model

For investors, the Capital asset pricing model is simple and clear with the three factors
including the systematic risk that is always wrote by the quantity beta (), the
expected return of the market and the expected return of the certain risk-free
asset(Jensen, M., & Scholes, M., 1972). But this model has the disadvantages. For
example, the different types of cost, taxes, and asymmetric information exist in the
market increases of the friction and difficulties on evaluating and selecting due to the

existing of various type of costs, taxes and asymmetric in the market (Arnold, G.,
2013).

The formula of the model is as following:

In fact, the return rate of the investor acquired the price of stock to increase (decrease)
and the capital gains (or losses), to add the stock of the cash dividends or equity
dividends (Fama, E. F., & French, K. R., 2004).

It can be seen from the above formulas that the return of the equity largely related
with the overall market trend and the specific dividend policies. Such as the Paragon
group has the sustainable cash flow and income while the better dividends policies
which would lead the investment of the enterprises equity to get the well return. The
investor can maximize the utility and return from investment.

4.0 Returns on investment

The returns mostly come from the following three aspects.

At first, the capital gain can be regarded as the profit from the cash gain of the equity
investment. It is sometimes referred as the net cash flow. For the equity investor, they
can gain profit in price in stock transaction, which investor selling shares in the higher
price than original shares that bought in the stock market.

Secondly, the pursuit of investors for maximum return, the payback period and the
regular flow of dividends is important. Dividend is a taxable payment based on the
numbers and classes of shares held by them.

At last, a right and diversified investment portfolio also the better the way to
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maximize investor returns. When the stocks market rise, a substantial increase in the
proportion of equity investments would help to the pursuit of increased revenue
(Higgins, R. C., 2009). Investors can profit by selling the increased securities in
markets.

5.0 Summary
It can be concluded that there may be the risk of investor not receiving a return on
their investment. Then investors should pay attention to the information from the
perspective of P/E ratio and dividend Yield. The investors also should diversify your
portfolio the share price movements of market and the selected company , results of
growth over periods of time should be take into account. The investors also seek
professional help to manage investment such as the fund managers and financial
planners.

Reference
Arnold, J. and Turley, S. (1996) Accounting for Management Decision. 3rd Ed.
London: Prentice-Hall

Higgins, R. C. (2009) Analysis for Financial Management. International. Ed. Boston;

London: McGraw-Hill Irwin.

Fama, E. F., & French, K. R. (2004). The capital asset pricing model: theory and
evidence. Journal of Economic Perspectives, 25-46.

Jensen, M., & Scholes, M. (1972). The capital asset pricing model: Some empirical
tests.

Paulsson, J. (2013). The Paragon Corporation: Exploring Corporate Responsibility

and Shared Value for Profitability.

Securitization

of

Paragon

group

of

companies

PLC.

http://www6.paragon-group.co.uk/pgroup.nsf/securitisationMainFS

Available

from:

[Accessed

on

15th May, 2014].

Share-price-information of Paragon group of companies PLC. Available from:

http://www.paragon-group.co.uk/Investors/Share-price-information [Accessed on 15th
May, 2014].

Annual Report in 2013 of Paragon group of companies PLC. Available from:

http://www.paragon-group.co.uk/file_source/Files/MAIN/pdf/Financial
%20Reports/Annual%20Reports/Annual%20Report%202013.pdf [Accessed on 15th
May, 2014].