Introduction
Investment is done on the basis of strong and effective analysis in particular and for that purpose, ratio analysis is an important tool. There are numerous tools that used specifically to analyze the effectiveness of a stock for the purpose of investment. The core theme of this paper is to select four different stocks and then analyze their financial position for the purpose of stock investment. The companies which have been selected for the same analysis are Microsoft Inc, Keurig Green Mountain, FedEx Corporation and Bank of America.
Analytical Review
Microsoft Inc is an American based multinational corporation with its headquartering located in Washington, United States that manufactures, licenses, supports and sells computer based software, personal computers and consumer electronics. It is a financially viable company with its shares listed on the Standard & Poor (S&P) 500 Index. Microsoft Inc generated net revenue amounting to US$ 77.85 billion in the financial year (FY) 2013. Keurig Green Mountain, the second company which has been selected for the same analysis is a publically trade brand of Coffee located in the United States. The company offers over 100 different coffee selections. Net income earned by the company in the year 2013 was US$ 483.2 million. FedEx Corporation which is the 3rd selected company in this analysis is an American based global courier delivery service company with its headquartering in Memphis, U.S. The products of the company include Post Delivery, Express Mail, Third Part Logistics and Freight Forwarding. FedEx earned net revenue and net income amounting to US$ 45 billion and US$ 2.03 billion in the fiscal year 2013 respectively. The Bank of America (BOC) is the last company which has been selected for the same analysis is basically an American based multinational banking and financial service corporation with its headquartering located in North Carolina, the U.S, providing different financial based services include corporate banking, consumer banking, investment banking, private banking and mortgage loans. The revenue generated by the bank in the year 2013 was US$ 88.94 billion.
Financial Ratio Analysis
There are different ratios which have been taken into account for the same analysis, including current ratio, net profit margin, return on assets and others. Five years of financial data has been consider for the analysis
Net Profit Margin Analysis
Net Profit Margin (NPM) of the selected companies are mentioned below
Current Ratio Analysis
A ratio that analyze that how much a company is effective in terms of meeting with its short term financial obligations is known as Current Ratio.
Return on Assets (ROA)
A ratio which used to analyze the effectiveness of the operational assets of a company in generating net income is known as Return on Assets (ROA). It is one of the most widely used models by the investors which show that how much effectiveness is their associated with the company in terms of utilizing its operational assets. The ROA of the companies are mentioned below
Return on Equity (ROE)
Return on Equity is an important ratio from the viewpoint of investors. It uses to analyze that how much a company earned over the net investment of their shareholders. It is an important ratio uses by the investors to analyze the financial position of the company and response of the company towards utilizing the funds of the investors. The computation of ROE of the same is mentioned below
It is clear from the above mentioned analysis that the essence of the selected companies as far as generating effectiveness for their shareholders is on a higher position and effectiveness, showing that it will increase the financial belongings of the company. The mean ROE of Microsoft Inc is 84.65%, while it is 37.16% and 63.48% for FedEx and Green Mountain respectively. From this particular analysis, it is clear that all of the selected companies are in the favor of the investors and take all necessary actions and measurements to enhance their productivity in a broad nutshell.
Price to Earning (P/E)
A ratio that used to compare that how much effectiveness would have been used to investment in particular is known as Price to Earnings ratio. The higher the P/E ratio the higher will be the expectation of the investors towards the stocks. The P/E is mentioned below
Growth Rate of Dividend
Intrinsic Value would have been computed in this analysis
Dividend Growth Model = D0 / KE – Growth Rate (1)
Microsoft Inc = 0.80 / 9 – 7.5%
Microsoft Inc = 53.3$
Green Mountain = 3.5 / 11 – 8.5 = 140$
FedEx = 3.8 / 10.5 – 8.5 = $ 190
Bank of America = 0.60 / 8 – 6.5 = 40$
Intrinsic Value is defining that all of the selected companies are trading under value and all of the stocks have high potential in particular which is an effective sign from the viewpoint of the investors, like they have chance to invest and park their money in the stocks of the selected companies.
CAPM Modeling
Beta of Microsoft = 0.29
Beta of FedEx = 0.56
Beta of GMCR = 0.57
Beta of Bank of America = 0.38
Risk Free Rate = 4%
S & P Market Return = 5.8%
CAPM = RRF + Beta (RM – RRF)
CAPM = 4% + 0.29 (5.8 – 4)
CAPM (Microsoft Inc) = 4.5%
CAPM (FedEx Co) = 5.008%
CAPM (Green Mountain) = 5.026%
CAPM (Bank of America) = 4.68%
P/E Model
The intrinsic values of the selected companies as per this particular model is mentioned above, showing that the share prices of the selected companies are higher than the investor’s expectation which is an effective sign from their own standpoint in particular.
Summary Findings
References
Financial Highlights of Bank of America (2009-2013), [Online], retrieved from < http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=BAC >, Accessed on 2014-June-25th
Financial Highlights of FedEx Corp (2009-2013), [Online], retrieved from < http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=FDX >, Accessed on 2014-June-25th
Financial Highlights of Green Mountain (2009-2013), [Online], retrieved from < http://investing.money.msn.com/investments/key-ratios?symbol=US%3aGMCR&page=TenYearSummary >, Accessed on 2014-June-25th
Financial Highlights of Microsoft Inc (2009-2013), [Online], retrieved from < http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=MSFT>, Accessed on 2014-June-25th
