BUS-4072_FouchTashia_Week9Assignment

pdf

School

Capella University *

*We aren’t endorsed by this school

Course

4072

Subject

Business

Date

Apr 30, 2024

Type

pdf

Pages

Uploaded by SayeedandMe2023

Week 9 Assignment: Equity Analysis Tashia Fouch Capella University BUS-4072: Analysis for Financial Management Professor Robert Watson March 2024

ABC FIRM Tel 123-456-7890 Fax 012-345-6789 123 Main Street Anywhere, USA www.abcfirm.com tfouch@abcfirm.com 12.31.2013 Memo Comments: Greetings! Using the Price-earnings Ratio and the DuPont Model, I have performed an equity analysis for ABC for the years 2012 and 2013 using the below information: • Revenue: $130,500,000 (2012); $202,560,000 (2013). • Net Income: $22,740,000 (2012); $44,563,000 (2013). • Assets: $210,000,000 (2012); $206,700,000 (2013). • Shareholders' Equity: $146,500.000 (2012); $148,824,000 (2013). • Market Value Per Stock Share: $23.15 (2012); $28.22 (2013). • Earnings Per Share: $2.87 (2012); $4.10 (2013). • Industry Average ROE: 22.5% (2012); 27.3% (2013). • Industry Average Price/Earnings Ratio: 7.7 (2012); 8.2 (2013). The following is my analysis of the changes from 2012 to 2013, as well as my recommendations for the year 2014. The ABC Firm has shown improved performance in 2013 compared to the prior year (2012), which is evident from the changes in its ROE and P/E ratio in comparison to industry benchmarks (see attached for P/E ratio and ROE calculations). Higher returns and a reduced P/E ratio suggest that The ABC Firm is excelling and experiencing a positive trend in its performance. As we move into 2014, it is advisable for the company to reinvest its earnings instead of distributing them as dividends to shareholders. Given ABC's ability to generate returns surpassing the industry average, shareholders are inclined towards seeing the company expand. This strategy is expected to result in an increased share price in the coming years and enhanced earnings for shareholders. To ABC Senior Management From Tashia Fouch CC Prof. Robert Watson Re ABC Firm – Equity Analysis for 2012+2013

Equity Analysis For: The ABC Firm Years 2012 and 2013 (calculations) Pertinent financial information:  Revenue: $130,500,000 (2012); $202,560,000 (2013).  Net Income: $22,740,000 (2012); $44,563,000 (2013).  Assets: $210,000,000 (2012); $206,700,000 (2013).  Shareholders' Equity: $146,500.000 (2012); $148,824,000 (2013).  Market Value Per Stock Share: $23.15 (2012); $28.22 (2013).  Earnings Per Share: $2.87 (2012); $4.10 (2013).  Industry Average ROE: 22.5% (2012); 27.3% (2013).  Industry Average Price/Earnings Ratio: 7.7 (2012); 8.2 (2013). 1. Compute the return on equity (DuPont Model) for 2012 and 2013 and show all intermediate calculations to arrive at the ROE figure. ROE using DuPont Model = Profit margin x Asset turnover ratio x Equity multiplier Profit margin = Net income / Revenue 2012 PM = 22,740,000 /130,500,000 2012 PM = 17.43% 2013 PM = 44,563,000 / 202,560,000 2013 PM = 22% Asset turnover ratio = Sales / Total assets 2012 ATR = 130,500,000 /210,000,000 2012 ATR = 0.62 2013 ATR = 202,560,000 / 206,700,000 2013 ATR = 0.98 Equity multiplier = Total assets / Total equity 2012 EM = 210,000,000 / 146,500,000 2012 EM = 1.43 2013 EM = 206,700,000 / 148,824,000 2013 EM = 1.39 2012 ROE = 17.43% x 0.62 x 1.43 2012 ROE = 15.45% 2013 ROE = 22% x 0.98 x 1.39 2013 ROE = 29.97%

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

2. Analyze the return on equity (DuPont Model) change from 2012 to 2013, comparing it with the industry average ROE given in the assignment. In two paragraphs or less, write up your analysis discussing the positive and negative aspects of the company's performance. The ABC Firm's ROE has grown by 14.52% between 2012 and 2013. In 2013, the company's ROE surpassed the industry average, which is a positive sign for its performance. Although there may have been some negative factors that caused ABC to have a lower ROE compared to the industry average, the 2013 ROE shows that the company has successfully overcome these challenges and achieved a higher ROE than the industry average. 3. Compute the Price-earnings Ratio for 2012 and 2013 and show all your calculations. P/E Ratio = Market price / Earnings per share (EPS) 2012 PER = 23.15 / 2.87 2012 PER = 8.06 2013 PER = 28.22 / 4.10 2013 PER = 6.88 4. Analyze the Price-earnings Ratio change from 2012 to 2013, comparing it with the industry average Price-earnings Ratio for each year. In two paragraphs or less, write up your analysis discussing the positive and negative aspects of the company's Price-earnings performance. The price-earnings ratio, or P/E ratio, is a measure that tells investors how much they need to invest in a company to get one dollar of earnings. That's why it's also called the multiple - it shows how much investors are willing to pay for each dollar of earnings. Typically, a high P/E ratio means investors are expecting the company to have higher earnings growth in the future compared to companies with a lower P/E. On the other hand, a low P/E could mean the company is undervalued or that it's doing really well compared to its past performance. Looking at the example given, a decrease in the company's P/E ratio from 2012 to 2013 indicates that the company did well in 2013.

Related Documents

Frazier_Journal1.docx

Benchmark_ Innovation_in_Technology_Analysis.docx

SU_MBA5001_W4_Fuller_M.docx

Motivation_&_Retention_in_IT Organization Analysis.docx

ch10-bai-tap-chuong-10.pdf

MBA 530 GROW Model Template_Reedy.docx

DB2.docx

BUS-4072_FouchTashia_Week4Assignment.pdf

BUS-4072_FouchTashia_Week6Assignment.pdf

Discussion Thread Reply_ Processes of Global Logistics.docx

BUS-4072_FouchTashia_Week5Assignment.pdf

BUS-4072_FouchTashia_Week3Assignment.pdf

Recommended textbooks for you

BUSN 11 Introduction to Business Student Edition

Business

ISBN:9781337407137

Author:Kelly

Publisher:Cengage Learning

Essentials of Business Communication (MindTap Cou...

Business

ISBN:9781337386494

Author:Mary Ellen Guffey, Dana Loewy

Publisher:Cengage Learning

Accounting Information Systems (14th Edition)

Business

ISBN:9780134474021

Author:Marshall B. Romney, Paul J. Steinbart

Publisher:PEARSON

Introduction to Business

Business

ISBN:9781947172548

Author:OpenStax

Publisher:OpenStax College

International Business: Competing in the Global M...

Business

ISBN:9781259929441

Author:Charles W. L. Hill Dr, G. Tomas M. Hult

Publisher:McGraw-Hill Education

Bcom

Business

ISBN:9780357026595

Author:LEHMAN, Carol M.

Publisher:Cengage Learning,

SEE MORE TEXTBOOKS

Recommended textbooks for you

BUSN 11 Introduction to Business Student Edition
Business
ISBN:9781337407137
Author:Kelly
Publisher:Cengage Learning
Essentials of Business Communication (MindTap Cou...
Business
ISBN:9781337386494
Author:Mary Ellen Guffey, Dana Loewy
Publisher:Cengage Learning
Accounting Information Systems (14th Edition)
Business
ISBN:9780134474021
Author:Marshall B. Romney, Paul J. Steinbart
Publisher:PEARSON
Introduction to Business
Business
ISBN:9781947172548
Author:OpenStax
Publisher:OpenStax College
International Business: Competing in the Global M...
Business
ISBN:9781259929441
Author:Charles W. L. Hill Dr, G. Tomas M. Hult
Publisher:McGraw-Hill Education
Bcom
Business
ISBN:9780357026595
Author:LEHMAN, Carol M.
Publisher:Cengage Learning,