Expert answer:BUS101 De Anza College Apple General Motors and Jp

  

Solved by verified expert:In this exercise, you need to pick three public traded companies of your choice, calculate and compare the ratios as stated in the attached .pdf file, and write a short essay to explain these ratios as well as provide ranking of financial performance of these three companies. Please do not plagiarizeHere is a student example of this exercise but I recommend you to add the explanation of each company’s ratios into your analysis:Here is the instruction and an example of this project:
financial_ratio_project.pdf

my_financial_ratio_project_1.pdf

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Financial Investment Project
There are two basic types of investments: equity and debt. Equity is when you own something
– usually common stock in a company, but also real estate and commodities such as gold.
Debt, such as a bond, is when you loan money to others and receive interest in return.
As a general rule, equity is risky because stocks rise and fall. Debt is safer because in order to
lose your principle ( the amount you invested in the first place), the government or company
that owes you would have to actually default on the loan.
You need to take reasonable risk in order to grow your wealth. In general, the risk you take with
equity is rewarded with a better return in the long term. When you buy stock, you become a
part owner in the company that issued the stock, and you are entitled to vote for officers,
among other privileges. In the United States, the two most widely known markets are the New
York Stock Exchange and NASDAQ, which is short for the National Association of Securities
Dealers Automated Quotation.
Even if you never buy individual stocks, it’s a good idea to understand how stock performance
is measured. In this exercise, you need to pick 2-3 stocks from NYSE and/or NASDAQ and
compare their stock primer below:
Revenues: are what a company brings in for whatever it sells. It does not tell you precisely
how well a company is doing, but it is a good sign if revenues are growing from year to year.
P/E ratio: the price/earnings ratio quantifies the price of a stock relative to its earnings. So if a
company’s stock costs $100 per share and the earning is $4 per share, you would divide 100
by 4 to get a P/E ratio of 25.
Debt to owner’s equity ratio: Most companies take on debt to grow their business, although
some take on more than others. If a company takes on too much debt, interest payments can
eat into profits. As shown on page 483 of our textbook, Debt to Owner’s Equity Ratio is the
total debt relative to the value of outstanding shares. Ideally, this number should be a fraction
less than 1.
Current Ratio ( page 482), Earning per share ( page 484), ROS and ROE ratios ( page
484-485). Read the definitions of these ratios from our textbook and calculate the ratios of the
companies of your choice.
Compare the stock primer below and explain which company has better financial health. As an
investor, which stock are you interested in investing? Please provide a short essay to support
your conclusion.
Revenue
Company
Name #1
and stock
symbol
Company
Name #2
and stock
symbol
Company
Name #3
and stock
symbol
P/E Ratio
Debt to
Equity
Ratio
Current
Ratio
Earning
per Share
ROS
ROE
Financial Ratio Project
I have chosen to look at their stock opportunities of three companies. Amazon.com Inc., IBM
Corp., and Caterpillar Inc. I wanted to pick very diverse companies at least 20 years old. All
numbers come from the end of 2017.
The ratios and numbers are rather complicated when looked at all at once. Each one, by itself is
not a complete picture. Even when looking at them together shows different aspects of the same
picture, and not everything. For example, a company can be both healthy and shrinking in size at
the same time. Therefore I have created a ranking system. It is best to try and find an apples to
apples comparison, like Current Ratio, Return On Sales, so that comparisons of very different
industries can get numbers that are more meaningful when compared to each other, but doe to the
diverse industries, these comparisons may be misleading (Like ROE specially).
The ranks I have chosen are simple 1 to 3, in order of least desirable to most desirable. The goal
is to tally up all the numbers and get a final ranking in order of least likely to most likely to buy.
The scores will be total Sum, Average, and Median.
The final results show IBM is the clear winner, with Caterpillar second, and Amazon not too far
behind. The results are the same for all three methods of calculating a score (Sum, Average,
Median).
There probably should be some weighting involved in calculating the final score, but this
requires knowledge beyond my capabilities.
All Dates 12/31/2017
Data from: https://www.macrotrends.net/stocks/research
Name
Amazon.com Inc.
IBM Corp.
Caterpillar Inc.
Revenue
$ 177.866
$ 79.139
$ 45.462
P/E
Ratio
190.16
24.20
123.10
D/E
Ratio
3.7
6.1
4.6
Total
Current
Ratio
1.04
1.33
1.35
Earnings
Per Share
$
6.15
$
6.14
$
1.26
ROS
2.31%
13.06%
11.11%
ROE
10.9%
32.5%
5.5%
Equity
27.709
17.725
13.766
EBIT
4.106
10.332
5.052
Net
Income
3.033
5.753
0.754
Current
Symbol
AMZN
IBM
CAT
Assets
131.31
125.356
76.962
Liabilities
103.601
107.631
63.196
Assets
60.197
49.735
36.244
Rank 1-3
Revenue
P/E
D/E
Current Ratio
EPS
ROS
ROE
Score (Sum)
Score (Average)
Score (Median)
AMZN
3
1
1
1
3
1
1
11
1.6
1
IBM
2
3
3
2
2
3
3
18
2.6
3
CAT
1
2
2
3
1
2
2
13
1.9
2
Liabilities
57.883
37.363
26.931
(Not profit.) Higher better
Lower Better
Leverage = Risk
Liquidity – 2:1 Good, <1:1 Bad, >5:1 Inefficient
Profitability. Higher better
Operational efficiency. Higher better
Operational efficiency. Higher better
Price
$ 1,169.47
$ 148.61
$ 155.11

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