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Questions: 1.Critically evaluate Aveos Financial Management policies and practices with respect to their Social Responsibility and social outcomes of their actions 2.Using publicly available data, analyse Aveo as an investment proposition with particular reference to its share price history and history of traded volumes over the past 2 years. Answers: Introduction Efficient financial management is the essence of an organization and this is the reason why financial management policies like capital management, dividend policy are given due recognition. In relation to Aveo Group, the policies implemented by it have assisted it to make a strong progress over the years. An analysis has been done to shed light on the goals of Aveo and whether the corporation should consider the influence of financial decision on sustainability and responsibility. Goals of Aveo Firstly, the Group intends to obtain continuity of flexibility and funding and for such purpose, it utilizes bank loans, overdraft facilities, finance leases, etc in addition to other sources of income. It also reviews its current lines of funding so that future requirements can be addressed. This allows the Group to enhance its flexibility by matching the profiles of cash flow requirements with that of short-term investments. Further, this also allows for timing the negotiation of various credit facilities (Bauer Hann, 2010). This assists the Group in enhancing the efficacies of their social responsibility actions that is its main priority. Secondly, it recognizes the importance of management of capital and for such purpose; it ensures that a mix of funding options are utilized. Besides, this is done in alignment with the objective of maximizing shareholders returns. Further, it intends to maintain a capital structure that can assure a lowest available WACC (weighted average cost o f capital). In relation to this, the Group attempts to maintain its gearing ratio in the range of ten and twenty percent. This can be proved by the fact that its gearing ratio was 17.4% in the year 2015. Moreover, in order to attain advantage from variations in the cost of capital, the Group may adjust such capital structure including variations in dividend payable to shareholders, adjusting the level of debts, etc (Damodaran, 2010). Thirdly, in order to ensure that the resources of the Group are not hampered, it ensures that customers who are willing to trade on credit terms are properly subjected to credit scrutinization processes including an evaluation of their financial position, regulation of industries, etc. Further, the Group also possesses a cash management policy that allows it to maintain liquid cash and other portfolio investments so that preservation of cash is done at all times (Melville, 2013). This can play a key role for the Group in the proper investment of resourc es for the attainment of prime goals and objectives (Bauer Hann, 2010). Moreover, management of working capital can also be done with the help of such financial management practice so that future complications and risks can be avoided, and the resources can be committed to enhancing the lives of aged people in Australia. Fourthly, Aveo also possesses a securities trading policy wherein employees and directors are restricted from dealing in the securities of the company especially in the prevalence of price-sensitive information in order to safeguard insider trading (Aveo, 2017). Lastly, in relation to investments, the Group has an investment policy wherein when it comes to joint ventures and associates; the same is done through an equity-accounted investment measure so that the key social objective of development of retirement villages can be easily taken care of (Williams, 2012). Code of ethics, ethical theories, corporate social responsibility In relation to financial decisions on social responsibility and sustainability, not a slight carelessness can be undertaken. This is because of the fact that Aveo being badly accused of ripping its customers at their retirement villages even though it intends to maximize social responsibility through their actions. Even though Aveo is focused on retirement only by investing more than $700 million towards retirement items and services, yet it must consider the ramification of their financial decisions towards on sustainability and social responsibility. Aveo denies that it pursues a policy to churn the residents and states that most of its residents are happy. However, the truth is that the company has used complicated contracts and exorbitant fees to enhance its profits (Paradise Rogoff, 2009). Moreover, even though the company has denied to the same, yet there are cases of many residents facing intense issues because of the company (Kruger, 2015). This can be proved by the fact tha t the companys three different sources of income, despite being focused towards the lifestyle of residents, yet are causing troubles to them. The Group rakes in cash from the sales price received from the occupants, it also charges a management fee for various services offered, and a deferred management fee (DMF) is also taken after vacation of the unit. All these have fetched immense profits to the Group as it rose to $116 million in 2016 surpassing the expectations of the analysts. The accusations implanted upon the Group have made it realize that many customers were let down because of its financial decisions on sustainability and therefore, it has reconsidered its plans by strengthening and improving its own complaints and processes of incident handling that includes a need for independent mediation (Libby et. al, 2011). Further, it has also endeavored to make its contracts simpler so that the residents have adequate certainties about what they spend (Aveo, 2017). Moreover, it c an be seen from the annual report of Aveo that it has taken every relevant step to ensure that its customers are properly looked after but it must also consider the consequences of their financial decisions because many consumers encountered losses and other issues because of the Groups policy. According to various investigations, it was found that many residents were slipping through cracks in the regulatory system. This is because many authorities like the Consumer Affairs did not have enough powers to prevent such business practice of Aveo (Albuquerque et. al, 2013). Even lawyers have defined various clauses in the contracts of Aveo as draconian and complex. Therefore, on a whole, even though the major corporate Aveo has denied all the allegations, yet residents have encountered issues both mentally and financially. The Group intends to enhance the living style of its customers but every time it was proved that its main intention is to enhance profits. Besides, most of its profits derived from exit fees in the year 2016 that shows how much unsatisfied the consumers were. Hence, even if the accusations are untrue, the problems occurred to the residents cannot be unreal and it is just because of the ineffective financial decisions conducted by the company (Aveo, 2017). Thus, the Group must take into account the ramifications of their decisions on sustainability because if not, more residents will be caught in such financial prison. 2.Aveo as an Investment Going by the overall study and an in-depth research it can be said that the customers remained unsatisfied with the company and it is purely dedicated on reaping profits leaving other factors ignored. As per the study, it is seen that the acts of the organization have led to major issues and has affected the performance. Therefore, as per the evaluation, it can be said that the company is riding under immense difficulties and hence, any wrong or negative new can badly degrade its position in the stock market (Damodaran, 2012). Hence, investment at the current juncture would lead to difficulty as volatility is present and share has taken a sharp dive. Therefore, for the purpose of investment, it must be left to operate and must be kept under the radar so that a decision can be taken in the near future. Causes of fluctuations in the share price and the volumes traded The Aveo group share price pattern reveals that there has been volatility in the share prices. However, the overall trend was strong until 2017 where the graph was indicating higher high and higher low. However, in the year 2017, the share price plunged owing to negative media investigation that concerns the operational performance. The share prices of Aveo group became the worst performers on the Australian Stock Exchange when it declined by eleven percent following the allegations made by Four Corners and Fairfax Media. However, the company has witnessed major volatility in the prices of its shares and even the volume in the last two years. The major underlying reasons behind such volatility can be attributed to the performance of the Group and satisfaction on the part of its residents. When it comes to volatility it affects the prices of the shares and the volume too (Davies Crawford, 2012). Before such investigation claiming unethical practices conducted on the part of the Group, there were customers who were unsatisfied with the contracts of the company. For such purpose, Aveo endeavored to simplify the contracts in a way that it makes it simpler for the residents to understand. This assisted in enhancing the share prices of the Group and it can be proved by the fact that based on a survey, more than ninety percent of residents were satisfied with the services provided by the company (Ronngard, 2016). In addition, since the past two years following the rollout of Aveo contract, more than 2000 customers have gained from the simplification of the contract and it is increasing day-by-day. Moreover, this has resulted in doubling the profits of the company that has enhanced its share price by 10pc in the year 2017. Further, in the year 2016, the acquisition of Freedom Aged Care Pty Ltd allowed the company to diversify its services across Australia that also increased its prices of shares (Aveo, 2017). Furthermore, one year ago, the company moved to full authority over another operator named Retirement Villages Group that allowed it to absorb the remaining twenty seven percent of the stake it did not hold. As a result, there was an enhanced contribution from the sales of development units that was greater than the sales of its current units. This can be proved by the fact that the Group recorded an interim sales of 108 (development) in comparison to 29 of 353 overall sales that incurred in the first half of 2016. Besides, the development arm of the company contributed more than eight percent to the earnings of the Group in the past years that have in turn maximized its share prices. However, even though the company recorded efficient results, yet its practices became questionable under the eyes of the law that eventually played a key role in decreasing its share prices (Horngren, 2013). Besides, even though the contracts were simplified, yet many residents were unhappy and when the Australian Competition and Consumer Commission took over the case, hearing such news resulted in a decline of its share price by 5pc. Any questionable fact is considered by the market with utmost negativity and impacts the smooth operation of the company (Benabou Tirole, 2010). Due to all these questionable practices on the part of the Group, it finally decided to launch a $145 million buyback program so that it can enhance the prices of its shares. However, the Group could not encounter the questionable allegations even though it spent millions on advertising to avoid such accusations (Aveo, 2017). This resulted in a class action against the Group that declined its share prices by more than ten percent. Therefore, it is imperative that the company failed to prove the reason and give a complete justification of the happening. Hence, any further proceedings in the case can lead to more volatility and hence, Aveo at present is under difficulties and should not be considered for any investment purpose. It must be allowed to resurrect so that the trend or the pattern can be known. Conclusion The study above clearly indicates that Aveo has faced difficulty in operation and is mainly due to the external scenario. Hence, it is the duty of the management to ensure that the company should be free from all such allegation by laying down a structure of strong corporate governance. It needs to be noted that any wrong or negative news can bring the stock prices to a big fall. This affects the goodwill of the company and leads to a disturbance in the stock market. Overall, the market scenario of the company remains in a bearish mode and the sharp plunge in the stock prices must be considered before taking any vital decision. In all probability, the current scenario of the company is not a good bet for investment. At present the trend is unknown and hence, the stock must be left to operate on its own and decision must be taken accordingly. 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