# FBE 630 Fundamentals Of Corporate Finance

## Question:

Project 1.

Please provide data from morningstar.com or Yahoo finance to determine the financial ratios of seven stocks in U.S. nonfinancial companies.

Follow the format and the items to interpret the ratios.

Firm 2

Firm 3

Firm 4

Firm 5

Firm 6

Firm 7

Current Ratio

Total Debt Ratio

Asset Turnover

Profit Margin

Price to Earning

Book the Market

Closing Stock Price (Feb 1st).

Explain the ratios to potential investors for these seven stocks.

If possible, use the structure of the textbook to compare the ratios with industry averages.

Liquidity ratios or short-term solvency: The current ratio is lower than one, which isn’t that high.

Financial leverage or long-term solvency ratios: The total amount of debt is 0.58. This is a good ratio.

Asset management and turnover ratios: Asset turnover stands at 2.38.

This is a high number.

Walmart makes good use of its assets.

Ratios of profitability:

Market value ratios. Both the Market to Book ratio and the Price to Earning ratio are lower than industry averages.

Stock is too expensive.

The firm’s financial ratios determine its performance in the market as well as over time.

Analyzing different financial ratios can help with investment and other financial decision making.

Short-term Solvency Ratio (or Liquidity Ratio): This determines a company’s ability to meet its short-term obligations. It also determines how quickly a firm can generate enough cash to satisfy its immediate needs (Brealey and Myers, 2017).

Current Ratio is the ratio between current assets and current liabilities.

It is used to determine how well a company can meet its current liabilities using its current assets.

The Long-term Solvency Ratio (or Financial Leverage Ratio): This ratio measures the amount of assets a company holds relative to its equity.

This determines how much risk a firm is exposed to (Shim & Siegel, 2008).O

Total Debt Ratio is a measure of the firm’s total debt as a percentage of its total assets. It is also known as the ratio of total and total assets.

The Debt-Equity Ratio measures the ratio between total debt and total equity.

Asset Management, also known as Turnover Ratio, is a measure of how well a company manages its investment.

It is used to measure the benefits that specific assets bring.

Asserturnover: This measures the ratio between sales and total assets.

This is an indicator of the amount of investment that results in sales.

Profit Margin: A firm’s profit margin is the percentage of revenue that exceeds its total costs.

Market Value Ratio (or Shareholder’s Ratio): This determines the share price for publicly held stocks of a company.

The Price to Earnings Ratio is the ratio between the current market price per stock and the earnings per share.

It is the price that market participants will pay per unit of current earnings. Stephen, 2017.

Market to Book Value ratio (Ross Westerfield, Jordan, 2017): This ratio estimates the market value of a firm by comparing its book value to its market value.

These are the seven U.S. non-financial companies that were considered:

Apple Inc (AAPL), Amazon.com Inc. (AMZN), Huron Consulting Group(HURN), UnitedHealth Group Inc. (UNH), Kraft Heinz Company [KHC], Oracle Corporation (ORCL), and Twenty-First Century Fox Inc. (FOX)

Below is a table that shows financial ratios for the seven companies listed above.

COMPANY NAME

Oracle Corporation (ORCL).

Twenty-First Century Fox Inc. (FOX).

Current Ratio

Ratio Debt-Equity

Asset Turnover

Profit Margin (%)

Price to Earning

Market to Book

Closing Stock Prices (February 1st)

Below is a table that shows industry averages for financial ratios for different companies.

INDUSTRY AVERAGES

Amazon.com Inc. (AMZN).

Oracle Corporation (ORCL).

Twenty-First Century Fox Inc. (FOX).

Current Ratio

Ratio Debt-Equity

Asset Turnover

Margin of Profit (%)

Price to Earning

Book the Market

Current Ratio: The current ratio for AAPL, AMZN and HURN, ORCL, FOX is greater than 1. This indicates that these companies have more assets than current liabilities.

These companies are doing well in the financial markets.

They have sufficient current assets to cover their current liabilities.

ORCL is the best option.

UNH and KHC are more indebted than they have assets.

Their performance is far worse than the industry they work in.

Debt-Equity Ratio : This ratio is very low for AAPL and AMZN, HURN and UNH, as well as KHC.

It is however high for FOX and ORCL.

These two companies are at high risk due to the fact that their assets are financed mainly by debt.

A firm’s risk is higher if it has a high debt-equity ratio.

Evidently, HURN performs better than the industry, while FOX’s performance falls short of that of the industry.

Asset Turnover Ratio (or Asset Utilization Ratio): A firm’s ability to use its assets more efficiently is reflected in a higher asset turnover ratio.

AMZN is the most profitable company among all the ones that were considered. UNH follows closely behind, with UNH having the lowest turnover ratio. This indicates that UNH and AMZN use their assets best of all the companies.

AMZN’s asset turnover performance is superior to that of the industry.

Profit Margin: A company with a higher profit margin is generally in a better financial place.

ORCL has the highest profit margin, followed closely by AAPL.

These two companies have impressive results, even when compared to the rest of the industry.

AMZN’s profit margin is much lower than the average profit margin for the other companies.

Its performance is very low in comparison to the industry.

The Price to Earnings Ratio (or Market to Book Value Ratio): Both ratios for AAPL are higher than the market average, which means that AAPL’s stock is more expensive relative to its industry peers.

AMZN is overpriced based on the market value, but underpriced if you consider the price-earnings ratio.

The stock of HURN, however, is remarkably cheap compared to UNH’s.

KHC stock is significantly underpriced relative to its industry peers.

FOX stock and ORCL stock are both highly underpriced.

AMZN’s earnings to price ratio is remarkable.

The closing stock price is the daily end of day stock price for the various companies.

Refer to

The basics of corporate finance.

The basics of corporate finance.

Mcgraw-Hill Education, New South Wales.

New York: Barron’s Educational Series.

The basics of corporate finance.

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