TD Trust Canada: Investment Analysis and Management

Introduction

Finance investments refers to the process of fund allocation to a number of business asset(s) which may be inform of real assets, foreign financial assets, and the main business assets. Main business assets refer to financial assets and marketable securities that an institution owns. The key obligation of financial investment can be categorized sub-divided into primary and secondary objectives. Primary objectives refer to main factors that drive the operations of an institution; for instance, a move to increase capital, income base, and principal safety. Secondary objectives entail investment opportunities whose focus is mainly in: tax maximization and liquidity. Though the primary and secondary objectives are classified differently, they all contribute to the success of an institution more so, in objectivity and dealing with constraints. The importance of safety; for instance, involves considering what risks are prevalent in a given business environment, current market demands, and other market forces. Consequently, meaningful growth can be achieved if inflationary rates, returns on investment, tax imposed, risks and returns are all considered for making significant operation decisions.

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The working principals of financial investment can be understood if a real case study is taken so as to be well equipped with real company experience in relation to how the principal operations are driven. It is in that light that this project report gives investment analysis of TD Trust Canada and how the firm’s management copes with the modeling of such a successful institution. Business idea of starting the organization was conceived by a group of businessmen in Ontario who were involved in the trade of wheat and wheat products. They were overwhelmed by the need to create insurance, banking and exchange of commodities in order to meet their financial needs. In March 1855, The Bank of Toronto was incorporated following application for chatter by the group. The organization started running its activities with very few workers in 78 Church Street in Toronto and it grew to Montreal by 1860. The institution flexed its muscles in the 19th century through which it realized significant growth and was the best banking institution with highest share price in Canada. The institution dominated the market mostly serving farmers, merchants and wheat processors till another firm joined the market in 1870. The entry of Dominion Bank created competition and the two institutions became more and more aggressive to the ever expanding economy of Canada.

The two banks survived the turbulent times of the world war and gained more financial grounds after trading in war bonds and the economic opportunities that were created in those periods. The two institutions began negotiation for amalgamation in the year 1954 upon which an agreement was reached later in that year. After shareholders approval, The Dominion Bank and Bank of Toronto merged and became known as Toronto-Dominion Bank. Over the years the new institution grew and became popular among other institutions in service delivery through its product diversity, changes in financial scenes, and market availability for banking and other financial solutions. In the year 1999 the bank purchased Canada Trust which shares the same road to success as the TD Bank. With this new acquisition, the institution runs its operation under the name TD Canada Trust that is highly motivated by financial growth and customer satisfaction.

TD Trust Canada’s Economic Analysis

Consequential actions plans of carrying out operations of an institution in relation to resource allocation to optimized a company’s flow of cash is referred to as economic analysis. One or more action plans could be done after which an efficient and most profitable alternative is adopted. The adoption of a given alternative of running the operations of a firm should factor in some given assumptions besides looking at constraints that can impede application of a given production process. Economic analysis looks into opportunity costs that may result from an available resource that is used in the creation of superb company products. In addition, the measure also identifies private costs, social costs, and the positive influence the activities of an institution would have in a given society within an economy. The growth of TD Trust Canada has been tremendous following the economic growth of Canada and opportunities created by the global market. This is so due to the fact that economic growth of an economy simultaneously rises with proper management and allocation of resources/assets by individual business organization. Economic strength of a given sector of an economy creates investment opportunities that became building blocks of TD Trust Canada financial base.

“TD Economics provides analysis of economic performance and the implications for investors. The analysis covers the globe, with emphasis on Canada, the United States, Europe and Asia, (TD Economics). Back in 1990, technological inventions that led to e-banking created a new challenge, after which the institution created its website through which its customers could be served from whatever location they would be in. By the year 2000, the institution had already positioned itself to realize full utilization of the e-banking phenomenon. This economic opportunity created by technology was timely due to the growing needs of customer satisfaction internationally. Another economic opportunity that the company analysis would consider is the acquisition of Canada Trust that was completed in February 2000 following the need to of TD Trust Canada to become a major constituent of the world financial market.

The analysis of the economic position of a business organization is carried out by a process referred to as economic impact analysis; the study of economic effects resulting from shocks that change economic environment in an economy. The factors that would necessitate change of business environment include: natural disasters, environment, and physical among other changes. A case to sanctify this point in relation to operations of TD Trust Canada is the opportunities that were created by world wars which led to increased trade in war bonds. Through economic impact analysis the mentioned impacts above can be equated in monetary terms via the use of mathematical formulas; for example, a given sector of an economy can be linked with the overall responsibilities of an entire industry by use of input-output model. TD Trust Canada carried out a research on the effect of tax harmonization and the economic shocks it would create. Harmonization of sales taxes results in tax burden for consumers leading to increased consumer price level. “The increase in the consumer price level needs to be put into the broader context of the widely-held view, with which we concur, that a value added tax is a more efficient tax than the provincial retail sales taxes currently in place in both Ontario and B.C., (Drummond & Petramala, p. 8).

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TD Trust Canada’s Industry Analysis

Industry analysis refers to the investigation of factors that drive the growth of operational abilities of a given sector of an economy. The most commonly used approach to investigate these key features is known as PEST analysis; political, economic, social, and technological analysis applied in analyzing the performance of banking sector and TD Trust Canada which is our case discussion in this essay. PEST analysis focuses on a number of government policies (tax policies), rules and regulation applied to monitor the performance of sectors of the economy. An example to this effect as has already been mentioned above include the governments of Ontario and British Colombia to harmonize RST with GST; goods and services taxes come July 1, 2010. “We estimate that the move to a harmonized sales tax (HST) will reduce the amount of taxes paid on inputs by business by a combined $6.9 billion in British Columbia and Ontario, along with an additional $650 million by reducing compliance costs under the current separate provincial and federal tax systems,” (Drummond & Petramala, p. 1)

Social factors are constituents of PEST analysis that looks into how cultural aspects; for example, need for healthcare programs, population growth rate, and age distribution. Efficient healthcare programs aided by financial institutions like TD Trust Canada has made health care in Canada one of the best in the world. Another social aspect is labor force and employment opportunities which mainly depend on population growth rate. The period of the Great Depression evidenced reduced birth rates that were followed by high birth rates from 1946-1962. The high birth rate experienced in the in this period; also known as baby boom made generational impacts that passed from education to job hunting in the 1970s, implying an increased labor force in that period. The Great Depression also made Canada experience high immigration rate as job seekers were entering the country to meet their financial needs. In addition to this, the administration of Canada also encourages immigrants into the country to take jobs that are disregarded by the native Canadians.

Lastly, PEST analysis focuses on technology given that the banking sector has significantly been improved following technological advances especially with inventions in the Information and Communication Technology, ICT. TD Trust Canada has been in the front line in embracing technology in running its normal operations a feat that has made the institution realize significant development. The institution takes security as a major concern by incorporating state-of-the-art inventions in protecting TD Canada Trust Cards. The firm intends to adopt the use of chip technology in the coming years to protect its credit cards and TD Canada trust Access Cards. “The changeover to chip technology is part of a nationwide initiative that all Canadian financial institutions, payment systems, and merchants are embracing in order to help better protect Canadian consumers against fraud,” (TD Bank and Financial Group, Privacy and Security). In addition to the use of technology in security issues, the TD Trust Canada has a well developed website that has been in use since the 1990s. This has made it easy for the institution to attract international clients who can access information and services of the firm via the website.

TD Trust Canada’s Company Analysis

TD Trust Canada has its offices spread all over the world but with headquarter located in Toronto, Canada. The mission, vision, and goal of the institution vary from one branch office to the other but generally it aims at improving the quality of life of their clients through creation of a serene business environment. The institution offers a number of financial services which include: TD Canada Trust, TD Financial Services, and TD Commercial banking all under the umbrella of Canadian Personal and Commercial banking. In addition, the institution offers insurance services, wholesale banking (securities), wealth management (waterhouse, asset management, and AMERITRADE). TD Canada Trust mainly serves small businesses and personal services via online and telephone services. Commercial banking deals with services geared towards the interests of mid-sized firms while financing services are meant to satisfy the client purchases at point-of-sale services offered by vendors and authorized dealers. TD securities entail Global Capital Markets, products, and services to institutional customers, administrative authorities, and corporate clients.

TD Trust Canada has a developed financial and strategic decision makers to ensure the institution act as a link between government fiscal policies, customers satisfaction and the institution’s self profit optimization. One of the strategies that can act as mechanism through a company realizes its goal achievement is SWOT analysis; strengths, weaknesses, opportunities and threats. TD Trust Canada is among the leading financial services providers in Canada with a range of products developed to satisfy the needs of clients as has been mentioned in the company’s profile above. Trade name of TD Trust Canada is an asset for the company because it has been sold to a number of clients spread all over the world. Company analysis is important as it provides useful information to the company so as to realign needs of business intelligence. This is achievable through SWOT analysis; for instance, identification of weaknesses would make an institution see areas to put more emphasis on and where to withdraw services.

In order to make such conclusion, financial, strategic, and operational mechanisms have to be considered. The environment do provide opportunities like the one that was created by world war I and II that led to utilization of war bonds by the two institutions before they amalgamated. Another aim of giving a company analysis report is to provide basic information that anybody/any organization who would be in need of: job opportunities available in the firm, corporate issues, branch locations, structure and operation, and information about their important staffs among other vital information deemed necessary. It is also significant to give interim financial records and finance records for at least the last five years to anyone who would needs such information.

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TD Trust Canada’s Intrinsic Value Forecast

Intrinsic value refers to value of a company’s security that does not necessarily mean its book value or market price value. Copyrights, trademarks, company names are also variables that be included in intrinsic value forecast but due to inaccurate valuation of their monetary figures, they are often not considered. There are a number of procedures that can be used to arrive at intrinsic value and it is upon an organization to select which approach to use; for example, using the price an investor would pay for a security to a gauge of market capitalization.

Analysis of intrinsic value begins with coining a thesis statement. Thesis statement is coined to find specific issue to be addressed; for instance, identifying market needs, advantages that the entire industrial sector presents which an institution may need to capture in the seeable future; besides, financial strengths of a given firm. Whichever the opportunities that a company may take, it is most important to consider rewards that it will get in terms of boosting its cash flow and gauging whether the plan is viable were it implemented. The next procedure to take when analyzing intrinsic value of a company is to give an institution’s profile as has been already done for TD Trust Canada. Having looked at a company’s profile what follows next is close monitoring of Key Investment Points. Key Investment Points seek to identify market targets of an institution as this is the most significant determinant of a firm income. For TD Trust Canada, the market target is mainly Canadians and US citizens; though, they have clients also spread all over the world who they serve via adoption of modern inventions in technology like use of online services.

Consequently, business organizations have to ensure they beat their competitors at all costs and to achieve this, measures have to be taken in ensuring products are the most appealing to clients. TD Trust Canada is a product of amalgamation between Bank of Toronto and Dominion Bank. They merged in order to pull together their resources in a bid to satisfy the prevailing market needs at that period. Commanding market share will also create barrier to entry by other potential firms into the industry and by shielding other firms from entering the industry, continued trickling of business rewards are enjoyed. Another barrier to entry into an industry is via invention of highly skilled technology that are difficult to be copied by competitors. It is also significant that companies look at the risks involved in their service delivery so as to shield clients from possible risks involved in investment. In the financial analysis, cash sources and other resources required to drive product creation must be monitored; for example how cash flow grows or slumps, and inspecting cost of sale prospects. The final process of intrinsic value forecast involves analysis of financial position and forecast a firm’s financial strength in future. It is important to do sensitivity analysis so as to gauge what effects cash flow would have assuming different scenarios will occur. That responsibility lies with the management and it is the greatest determinant of how effective operations of business activities are done.

The variables used in calculating intrinsic values are present value; PV, PE, and risk analysis. PV is monetary expression of a future payment were it to be valued today. Its calculation is based on time frame, interest rates, and value of annuity. Another approach that can be used to calculate intrinsic value is PE Model Approach. It means to Price to Earning ratio and used to value an institution’s current share price in comparison to its share per price earning. The aim of the approach is to come up with a monitoring system for market performance.

PE ratio calculation arrives at market value per share calculate for a period of one year. It is advantageous because of its convenience; for instance, if PE is 10, it is interpreted that it will take an institution a period of 10 years for its earnings to measure up to the initial investment. This period is often referred to as pay back time.

  • PE ratio = market value per share/earnings per share
  • PE ratio = Average Stock Price/Net Income per share

To illustrate how this works, assuming FD Trust Canada earned $35 million in the last financial year that the current stock price is $135 per share, and its PE is 10. Then investors will be willing to pay $13.5 in every $1.35 of preceding year’s earning. PE ratio assumes that a company would be worth a number of folds of its future earnings. PE approach though used in forecasting intrinsic value, it has two main drawbacks: it is mainly earnings-based and this earnings at times do not reflect actual value generated by shareholders and it is also hard to determine what multiplier to use, or which industry average to use.

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The greatest challenge in calculating intrinsic value is how to come up with right values of PV and PE. Coming up with right values of PE, PV are what guard against possible risks that an investor may face. In the contrary, risks cannot be fully guarded against because if that was true then the financial crisis that hit the global economy would have been forecasted and avoided. Forecasting a company’s intrinsic values is the long term solution to giving it that market value that shareholders crave for. The success of this prediction depends on prediction of future flow of cash with justifiable degree of certainty. According to (Taulli, p. 184) cash flow statement is divided into three portions: cash flows from operation processes, cash flows from investments, and cash flow from financial services. It is in order for business leadership; for instance, management at TD Trust Canada to take into account all the points discussed herein especially in regards to cash flow for it is the backbone upon which business is run.

Investment Risk Analysis

Investment analysis can be categorized into two groups: Initial Investment Decision and Final Investment Decision. The former tend to analyze available options to mission accomplishment and with what level of benefits it will have to both the institutions and clients they serve. On the other hand, Final Investment analysis focuses on the implementation part of the suggested plans and it is done in detailed format with a number of parameters that influence operations of a business set up. These approaches should be built on risk information which is a fundamental part of Initial Investment Decision. In risk analysis, it is important that risk issues are examined and re-examined for their identification and updates. “In the course of identifying issues, either through research of available written materials or interviews with knowledgeable stakeholders, the IA team often formulates and records preliminary mitigations, and estimates the likelihood of the issue surfacing and the potential severity of the issue,” (Federal Aviation Administration). The next procedure to follow in risk analysis is to bring together relevant stakeholders to give objective assessment and justification arguments after which the least risky alternative is adopted. An assigned analyst then has to do cost-benefit analysis in order to gauge the impacts of risks and their mitigation upon which comparison with other alternatives is done.

Conclusion and Recommendation

Financial management and analysis is an important aspect of administering business operation more so, having looked at how it is applied in TD Trust Canada as a financial institution. The process of analyzing financial prospects of an organization is a long and procedural program that any business management should focus on. The various analyses: economic, company, industrial, and intrinsic all constitute to the successful analysis of finances of an institution. Investment analysis is the most important issue that can be beneficial to investors. It is in that line that this paper has outlined how to determine PV and PE values that are used to arrive at forecasted share prices.

Forecasting share prices via intrinsic value aids in determining share price and the closer it is to the actual stock price, the lower the risk if investment. Information given by intrinsic value analysis will help a potential investor and investors in general in gauging when to hold, buy, or sell a share. Risk analysis is another process that can help investors to grasp ideas on how to choose less risky stocks for investment. The natural business environment could also avail investment opportunities or lead to recession of the investment market, and for this kind of risks and opportunities we have no control over them. A good illustration to support this statement is the recent economic crisis that hit the global market.

Works Cited

Drummond, Don & Petramala, Diana: The Impacts of Sales Tax Harmonization in Ontario and B.C on Canadian Inflation. 2010. Web.

Federal Aviation Administration. Investment Analysis Risk Guidelines for Final Investment Decision. 2010. Web.

Taulli, Tom. “The Edgar Online Guide to Decoding Financial Statements: Tips, Tools, and Techniques for Becoming a Savvy Investor.” J Ross Publishing Series. Ontario: J. Ross Publishing, 2004. Print.

TD Canada Trust. About Us. 2010, Web.

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