Final Project: Investments Analysis Report and Executive Summary

Anonymous
timer Asked: Nov 27th, 2018
account_balance_wallet $50

Question description

Instructions

Submit the final project, the Investment Analysis Report, which should include portfolio analysis template, a complete portfolio, and an executive summary.

To complete this assignment, review the Final Rubric document.

I have uploaded the final rubric and my milestone draft 1-3. You need followed the feedback and the rubric to provide a revised and completed final milestone. The each feedback you can check it in the end of each milestone.

Do not only copy the draft and do not make any adjustment, even plagiarism. I will check it by turnitin.

By the way, the requirement in rubric must be followed, especially the content in the graph of rubric.

Final Project Guidelines and Rubric Overview For the final project, you will submit an investment analysis report for a hypothetical company, based on provided constraints and research of market and industry trends. You will need to utilize the topics covered throughout the course in order to demonstrate mastery of the knowledge and skill required of a corporate investment manager. Through research and calculations, you will be analyzing the company’s place in the financial market, constructing a portfolio, and compiling your findings in an executive summary to justify your investment strategies and decisions, along with evaluating the investment performances. As a corporate investment manager, it is your responsibility to construct an investment portfolio that will generate the maximum rate of return within a given risk class. In order to be successful in this, you need to synthesize your knowledge of your company’s industry and its place in the wider financial markets and of the modern portfolio theory, along with utilizing both qualitative and quantitative skills. This project addresses the following course outcomes: • • • • • • Evaluate financial market conditions in order to assess impact on companies and their portfolios Calculate rates of return for shareholders utilizing the dividend discount model and market multiples Determine appropriate balance between risk and return when constructing company portfolios Justify how securities in a portfolio reflect stakeholders’ investment objectives and meet professional standards Analyze industry trends in relation to company valuation on an absolute and relative basis for informing investment decisions Implement portfolio management strategies that meet the investment objectives of a corporation Prompt You are a new investment manager of XYZ Tech Company. The CEO has asked you to produce an investment analysis report. Using the provided information and investment parameters for the company along with your own financial database research, prepare an investment analysis report for the company. Your analysis report should include compiled data spreadsheets, a complete portfolio, and a justification of your investment strategies in an executive summary. Specifically, the following critical elements must be addressed: I. Company and Market Analysis: In this section, you will analyze the company and its position in the financial markets. A. Financial Markets i. Analyze the five-year performance of the domestic economy relative to the financial markets. ii. Explain specific market performance data based on compiled asset valuation model inputs supported by database research of five-year sector and industry performance and current trends. iii. Evaluate the impact of the five-year and current macroeconomic data on asset prices. B. Company Valuation i. ii. Analyze the company’s financial items and key ratios in order to demonstrate a comparison to peers and industry. Determine the intrinsic value of assets by inputting data into the various asset valuation models, and explain how each model was applied. C. Industry Trends i. Compile historic industry microeconomic data from database research for relative comparisons and inputs into asset valuation models. ii. Analyze quantitative data across sectors and industries to measure absolute and relative performance. D. Stakeholders i. Identify five key stakeholders and their needs in relation to the company’s portfolio. ii. Identify the common stockholders’ primary objective and their required return on equity. II. Portfolio: With your company and market analysis in mind, construct a complete portfolio that includes the following: A. Assets i. Explain the inclusion of specific asset classes for the portfolio, considering the portfolio's risk/return trade-offs and the company’s investment objectives. ii. Apply the asset allocation weightings across asset classes, sectors, and industries. B. Securities i. Analyze the company’s historical revenue and earnings growth in order to demonstrate a comparison to that of peers in the industry. ii. Determine the intrinsic value of assets utilizing the asset valuation models. C. Rates of Return i. Analyze the assets’ historical risk and rates of return, utilizing a comparison of the assets’ rates of return to similar securities or benchmarks for support. ii. Calculate required rates of return, utilizing various asset valuation models (e.g. stock valuation models, bond valuation models, real estate valuation models, etc.). D. Compare the risk/return trade-off on the investments. III. Executive Summary: Justify your investment strategies in a summary, utilizing your company and market analysis and portfolio for support. Include the following in your justification: A. Describe how making these investments will position the company within its industry in the market. Support with examples. B. Explain the benefits of the investments to stakeholders. C. Assess investment performance utilizing specific performance measurements. D. Assess investment performance based on risk/return metrics, citing specific examples. E. Explain how the strategies implemented in the portfolio meet the company’s investment objectives. Final Project Rubric Guidelines for Submission: Your final submission should be 7–11 pages in length. The Investment Analysis Report should include a spreadsheet of your compiled data, a complete portfolio, and a 2- to 3-page executive summary. The total page length includes the executive summary but does not include title, reference pages, or the spreadsheet. It should be written in 12-point Times New Roman font, double-spaced, following the most recent APA standards for formatting and referencing. Critical Elements Company and Market Analysis: Financial Markets: Domestic Economy Exemplary Meets “Proficient” criteria, and analysis demonstrates keen insight into the relation of economic performance to financial markets (100%) Proficient Analyzes the five-year performance of the domestic economy relative to the financial markets (90%) Company and Market Analysis: Financial Markets: Asset Valuation Model Inputs Meets “Proficient” criteria, and the database research used exemplifies advanced knowledge of performance and trends (100%) Explains specific market performance data based on compiled asset valuation model inputs supported by database research of five-year sector and industry performance and current trends (90%) Company and Market Analysis: Financial Markets: Macroeconomic Data Meets “Proficient” criteria, and evaluation demonstrates keen insight into the impact of macroeconomic data on asset pricing (100%) Meets “Proficient” criteria, and comparisons demonstrate keen insight into the relation of the company to industry peers in terms of key financial ratios (100%) Evaluates the impact of the five-year and current macroeconomic data on asset prices (90%) Company and Market Analysis: Company Valuation: Financial Items an Key Ratios Analyzes the company’s financial items and key ratios in order to demonstrate a comparison to peers and industry (90%) Needs Improvement Analyzes the five-year performance of the domestic economy relative to the financial markets, but analysis is cursory or contains inaccuracies (70%) Explains specific market performance data based on compiled asset valuation model inputs, but explanation is cursory, is not supported by database research of five-year sector and industry performance and current trends, or contains inaccuracies (70%) Evaluates the impact of the five-year and current macroeconomic data on asset prices, but evaluation is cursory or contains inaccuracies (70%) Analyzes the company’s financial items and key ratios in order to demonstrate a comparison to peers and industry, but analysis is cursory, comparison is incomplete, or response contains inaccuracies (70%) Not Evident Does not analyze the performance of the domestic economy (0%) Value 5.28 Does not explain specific market performance data based on compiled asset valuation model inputs (0%) 5.28 Does not evaluate the impact of the macroeconomic data on asset prices (0%) 5.28 Does not analyze the company’s financial items and key ratios in order to demonstrate a comparison to peers and industry (0%) 5.28 Company and Market Analysis: Company Valuation: Intrinsic Value Meets “Proficient” criteria, and explanations demonstrate advanced knowledge of how asset valuation models are used for determining intrinsic value of assets (100%) Determines the intrinsic value of assets by inputting data into the various asset valuation models and explains how each model was applied (90%) Company and Market Analysis: Industry Trends: Microeconomic Data Meets “Proficient” criteria, and compilation demonstrates keen insight into the microeconomic data needed for asset valuation models (100%) Compiles historic industry microeconomic data from database research for relative comparisons and inputs into asset valuation models (90%) Company and Market Analysis: Industry Trends: Absolute and Relative Performance Meets “Proficient” criteria, and analysis demonstrates keen insight into how data can measure absolute and relative performance (100%) Analyzes quantitative data across sectors and industries to measure absolute and relative performance (90%) Company and Market Analysis: Stakeholders: Key Stakeholders Meets “Proficient” criteria, and identification demonstrates keen insight into the needs of company stakeholders (100%) Identifies five key stakeholders and their needs in relation to the company’s portfolio (90%) Determines the intrinsic value of assets by inputting data into the various asset valuation models, but determination contains inaccuracies, or asset valuation models are not used correctly, or lacks explanation (70%) Compiles historic industry microeconomic data from database research for relative comparisons and inputs into asset valuation models, but compilation is incomplete or contains inaccuracies (70%) Analyzes quantitative data across sectors and industries to measure absolute and relative performance, but analysis is cursory, contains inaccuracies, or is not used to measure absolute and relative performance (70%) Identifies key stakeholders and their needs in relation to the company’s portfolio, but does not identify five stakeholders, needs are inappropriately identified in relation to the portfolio, or response contains inaccuracies (70%) Does not determine the intrinsic value of assets (0%) 5.28 Does not compile historic industry microeconomic data (0%) 5.28 Does not analyze quantitative data across sectors and industries (0%) 5.28 Does not identify key stakeholders and their needs in relation to the company’s portfolio (0%) 5.28 Company and Market Analysis: Stakeholders: Common Stockholders Meets “Proficient” criteria, and identification demonstrates keen insight into objectives of common stockholders (100%) Identifies the common stockholders’ primary objective and their required return on equity (90%) Portfolio: Assets: Asset Classes Meets “Proficient” criteria, and explanation demonstrates keen insight into the relationship between the risk/return tradeoff, investment objectives, and asset classes (100%) Explains the inclusion of specific asset classes for the portfolio, considering the portfolio’s risk/return tradeoffs and the company’s investment objectives (90%) Portfolio: Assets: Allocation Weightings Applies the asset allocation weightings across asset classes, sectors, and industries (100%) Portfolio: Securities: Historical Meets “Proficient” criteria, and analysis demonstrates keen insight into how the company’s growth relates to its peers’ (100%) Analyzes the company’s historical revenue and earnings growth in order to demonstrate a comparison to that of peers in the industry (90%) Portfolio: Securities: Intrinsic Value Meets “Proficient” criteria and demonstrates advanced knowledge of using asset valuation models in relation to intrinsic value (100%) Determines the intrinsic value of assets, utilizing the asset valuation models (90%) Identifies the common stockholders’ primary objective and their required return on equity, but identification is inaccurate or does not take into account either the objective or return on equity (70%) Explains the inclusion of specific asset classes for the portfolio, but does not consider risk/return trade-offs or investment objectives, explanation is cursory, or contains inaccuracies (70%) Applies the asset allocation weightings across asset classes, sectors, and industries, but application is incomplete or contains inaccuracies (70%) Does not identify the common stockholders’ primary objective or their required return on equity (0%) 5.28 Does not explain the inclusion of specific asset classes for the portfolio (0%) 3.17 Does not apply the asset allocation weightings across asset classes, sectors, or industries (0%) 3.17 Analyzes the company’s historical revenue and earnings growth, but analysis is incomplete, does not demonstrate a comparison to peers, or contains inaccuracies (70%) Determines the intrinsic value of assets, but determination does not utilize asset valuation models, is incomplete, or contains inaccuracies (70%) Does not analyze the company’s historical revenue or earnings growth (0%) 3.96 Does not determine the intrinsic value of assets (0%) 3.96 Portfolio: Rates of Return: Historical Meets “Proficient” criteria, and analysis masterfully uses the comparison of assets’ rates of return to similar securities or benchmarks for support (100%) Portfolio: Rates of Return: Calculate Portfolio: Risks/Return Executive Summary: Position Executive Summary: Benefits to Stakeholders Executive Summary: Investment Performance Meets “Proficient” criteria, and comparison demonstrates keen insight into trade-off on investments (100%) Meets “Proficient” criteria, and support used demonstrates keen insight into how investments can position a company in its industry and the market (100%) Meets “Proficient” criteria, and explanation demonstrates keen insight into how the stakeholders will benefit from the investments (100%) Meets “Proficient” criteria, and the performance measurements utilized demonstrate advanced knowledge into assessing performance (100%) Analyzes the assets’ historical risk and rates of return, utilizing a comparison of the assets’ rates of return to similar securities or benchmarks for support (90%) Calculates required rates of return, utilizing various asset valuation models (100%) Compares the risk/return trade-off on the investments (90%) Describes how making these investments will position the company within its industry in the market, supported with examples (90%) Explains the benefits of the investments to stakeholders (90%) Assesses investment performance, utilizing specific performance measurements (90%) Analyzes the assets’ historical risk and rates of return, utilizing a comparison of the assets’ rates of return to similar securities or benchmarks, but analysis is cursory, is insufficiently supported, or contains inaccuracies (70%) Calculates rates of return, but calculations are incomplete or contain inaccuracies (70%) Compares the risk/return trade-off on the investments, but comparison is incomplete or contains inaccuracies (70%) Describes how making these investments will position the company within its industry in the market, but description is cursory, is insufficiently supported, or contains inaccuracies (70%) Explains the benefits of the investments to stakeholders, but explanation is cursory or contains inaccuracies (70%) Does not analyze the assets’ historical risk and rates of return, utilizing a comparison of the assets’ rates of return to similar securities or benchmarks (0%) 3.96 Does not calculate rates of return (0%) 5.28 Does not compare the risk/return trade-off on the investments (0%) 3.96 Does not describe how making these investments will position the company within its industry in the market (0%) 5.28 Does not explain the benefits of the investments to stakeholders (0%) 5.28 Assesses investment performance, utilizing specific performance measurements, but measurements used are inappropriate, or assessment is incomplete or contains inaccuracies (70%) Does not utilize performance measurements to assess investment performance (0%) 3.17 Executive Summary: Risk/Return Metrics Meets “Proficient” criteria, and examples used demonstrate keen insight into how risk/return metrics can be used to assess performance (100%) Assesses investment performance based on risk/return metrics, citing specific examples (90%) Executive Summary: Investment Objectives Meets “Proficient” criteria, and explanation demonstrates keen insight into the company’s investment objectives (100%) Explains how the strategies implemented in the portfolio meet the company’s investment objectives (90%) Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy-toread format (100%) Submission has no major errors related to citations, grammar, spelling, syntax, or organization (90%) Articulation of Response Assesses investment performance based on risk/return metrics, but assessment is cursory, is insufficiently supported, or contains inaccuracies (70%) Explains how the strategies implemented in the portfolio meet the company’s investment objectives, but explanation is cursory or contains inaccuracies (70%) Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas (70%) Does not assess investment performance based on risk/return metrics (0%) 3.17 Does not explain how the strategies implemented in the portfolio meet the company’s investment objectives (0%) 3.17 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas (0%) 4.95 Total 100%
Apple (AAPL) Stock 2016 2017 2018 2019 Revenues Cost of Goods Sold Selling, General & Administrative Expenses Research and development Operating Income Net Interest Expenditure Pre-Tax Income Taxes Net Income 2,15639E+11 1,31376E+11 14193999872 10044999680 60024002560 1456000000 58568002560 15685000192 42883002368 2,24265E+11 1,56985E+11 38124975030 10044999680 29154392670 1456000000 27698392670 8309517801 19388874869 2,33235E+11 1,63265E+11 39649974031 10044999680 30320568377 1456000000 28864568377 8659370513 20205197864 2,4E+11 1,7E+11 4,1E+10 1E+10 3,2E+10 1,5E+09 3E+10 9E+09 2,1E+10 Earnings Per Share 7,838496537 3,544052891 3,693266906 3,84845 Shares Outstanding 5470819840 5470819840 5470819840 5,5E+09 Apple (AAPL) Bond Firm Debt & Coverage Ratios Debt/Assets Debt/Equity Current Assets/Current Liability EBITDA/Interest Debt/EBITDA Cash Flow Ops/Total Debt Intrinsic value in 2021 rate of return risk Ind Avg 0,27 0,59 1,35 0,34 1,23 0,76 Base $ 0,46 0,40 4,05 -0,67 2,26 0,35 Average Ceiling 24,14 $ 28,97 $ 36,21 15,79% 5,62% ock ond 2020 2021 3E+11 2E+11 4E+10 1E+10 3E+10 1E+09 3E+10 1E+10 2E+10 3E+11 2E+11 4E+10 1E+10 4E+10 1E+09 3E+10 1E+10 2E+10 4,1712 4,3455 5E+09 5E+09 Caterpillar (CAT) Stock 2016 2017 2018 2019 Revenues Cost of Goods Sold Selling, General & Administrative Expenses Research and development Operating Income Net Interest Expenditure Pre-Tax Income Taxes Net Income 38537000000 40078480000 41681619200 28905000000 28054936000 29177133440 4686000000 6813341600 7085875264 1951000000 1951000000 1951000000 2995000000 5210202400 5418610496 505000000 505000000 505000000 2490000000 4705202400 4913610496 192000 1411560720 1474083149 2489808000 3293641680 3439527347 4E+10 3E+10 7E+09 2E+09 6E+09 5E+08 5E+09 2E+09 4E+09 Earnings Per Share 4,261180667 5,63690142 5,886577373 6,1462 584300032 6E+08 Shares Outstanding 584300032 584300032 Caterpillar (CAT) Bond Firm Debt & Coverage Ratios Debt/Assets Debt/Equity Current Assets/Current Liability EBITDA/Interest Debt/EBITDA Cash Flow Ops/Total Debt Intrinsic value in 2021 rate of return risk Ind Avg 0,49 1,74 1,22 8,17 8,90 0,15 Base $ 0,55 0,90 1,97 5,25 8,37 7,58 Average Ceiling 38,77 $ 46,52 $ 58,15 12,75% 2,06% Stock Bond 2020 2021 5E+10 3E+10 7E+09 2E+09 6E+09 5E+08 6E+09 2E+09 4E+09 5E+10 3E+10 8E+09 2E+09 6E+09 5E+08 6E+09 2E+09 4E+09 6,6863 6,978 6E+08 6E+08 Consolidated Edison (ED) Stock 2016 Revenues Cost of Goods Sold Selling, General & Administrative Expenses Research and development Operating Income Net Interest Expenditure Pre-Tax Income Taxes Net Income 2017 2018 2019 12074999808 12557999800 13060319792 8452499866 8790599860 9142223855 2052749967 2134859966 2220254365 0 0 0 1569749975 1632539974 1697841573 702000000 702000000 702000000 867749975 930539974 995841573 698000000 279161992,2 298752471,9 169749975 651377981,8 697089101,1 1E+10 1E+10 2E+09 0 2E+09 7E+08 1E+09 3E+08 7E+08 Earnings Per Share 0,56507981 2,168368781 2,320536289 2,4788 Shares Outstanding 300400000 3E+08 300400000 300400000 Consolidated Edison (ED) Bond Firm Debt & Coverage Ratios Debt/Assets Debt/Equity Current Assets/Current Liability EBITDA/Interest Debt/EBITDA Cash Flow Ops/Total Debt Intrinsic value in 2021 rate of return risk Ind Avg 0,33 1,03 0,89 5,25 4,29 0,22 Base $ 0,35 1,55 1,25 6,03 4,10 0,21 Average Ceiling 16,59 $ 19,90 $ 24,88 11,16% 4,35% ED) Stock ED) Bond 2020 2021 1E+10 1E+10 2E+09 0 2E+09 7E+08 1E+09 4E+08 8E+08 1E+10 1E+10 2E+09 0 2E+09 7E+08 1E+09 4E+08 9E+08 2,808 2,9857 3E+08 3E+08 Northern Trust (NTRS) Stock 2016 2017 2018 2019 Revenues Cost of Goods Sold Selling, General & Administrative Expenses Research and development Operating Income Net Interest Expenditure Pre-Tax Income Taxes Net Income 4706899968 4895175967 5090983005 2131100032 3426623177 3563688104 2226500096 832179914,3 865467110,9 0 0 0 349299840 636372875,7 661827790,7 340200000 340200000 340200000 1633900032 296172875,7 321627790,7 434900000 88851862,7 96488337,21 1199000032 207321013 225139453,5 5E+09 4E+09 9E+08 0 7E+08 3E+08 3E+08 1E+08 2E+08 Earnings Per Share 5,252835813 0,908276241 0,986339076 1,0675 Shares Outstanding 228257664 228257664 228257664 2E+08 Northern Trust (NTRS) Bond Debt & Coverage Ratios Debt/Assets Debt/Equity Current Assets/Current Liability EBITDA/Interest Debt/EBITDA Cash Flow Ops/Total Debt Intrinsic value in 2021 rate of return risk Firm Ind Avg 0,066926665 0,99 0 1,38625904 21,99525775 0,185479868 0,083015972 0,97 9,23 0,258669651 51,33820933 0,139526195 Base $ Average Ceiling 7,38 $ 8,85 $ 11,06 20,30% 19,21% S) Stock RS) Bond 2020 2021 6E+09 4E+09 9E+08 0 7E+08 3E+08 4E+08 1E+08 3E+08 6E+09 4E+09 9E+08 0 8E+08 3E+08 4E+08 1E+08 3E+08 1,2364 1,3276 2E+08 2E+08 Macy's (M) Stock 2016 2017 2018 2019 Revenues Cost of Goods Sold Selling, General & Administrative Expenses Research and development Operating Income Net Interest Expenditure Pre-Tax Income Taxes Net Income 27079000064 28162160067 29288646469 3E+10 16496000000 19713512047 20502052528 2,1E+10 8256000000 4787567211 4979069900 5,2E+09 0 0 0 0 2327000064 3661080809 3807524041 4E+09 378000000 0 0 0 1678000000 3661080809 3807524041 4E+09 608000000 1098324243 1142257212 1,2E+09 1070000000 2562756566 2665266829 2,8E+09 Earnings Per Share 3,258221681 7,803765426 8,115916044 8,44055 Shares Outstanding 328400000 328400000 328400000 3,3E+08 Northern Trust (NTRS) Bond Firm Debt & Coverage Ratios Debt/Assets Debt/Equity Current Assets/Current Liability EBITDA/Interest Debt/EBITDA Cash Flow Ops/Total Debt Intrinsic value in 2021 rate of return risk Ind Avg 0,37 1,65 1,34 8,96 2,24 0,26 Base $ 0,29 0,92 1,19 9,64 1,90 0,13 Average Ceiling 52,67 $ 63,20 $ 79,00 12,19% 3,58% ck S) Bond 2020 2021 3E+10 2E+10 5E+09 0 4E+09 0 4E+09 1E+09 3E+09 3E+10 2E+10 5E+09 0 4E+09 0 4E+09 1E+09 3E+09 9,1158 9,4804 3E+08 3E+08 Stock Apple Inc Caterpillar Consolidated Edison Northern Trust Macy’s Weight Return Risk (%) (%) (%) 35 15,79 5,62 35 12,75 2,06 10 11,16 4,35 10 20,3 19,21 10 12,19 3,58 Expected return Risk 14,35 1,92 % %
Running head: MILESTONE ONE: COMPANY PROFILE Milestone One: Company Profile 1 MILESTONE ONE: COMPANY PROFILE 2 Milestone One: Company Profile Financial markets Five-year performance of the domestic economy relative to the financial markets The economic theory suggests a strong relationship between the performance of the financial market and the country’s economy. In this regard, the announcement of a large purchase or sale of government bonds has a strong influence on both the country’s gross domestic product and consumer price index, as per the results obtained by Weale and Wiedalek (2016). Moreover, a prosperous economy increases the sales of companies, which will thus be more appealing to potential investors. From this point of view, it is possible to expect that the financial markets will mirror the major economic events taking place. As such, it is possible to use the analysis of the financial statements of some of the country's most important companies to obtain information about the country's economy. The US economy will likely continue to increase at a rate ranging between 1 and 5% in the next five years (Weale & Wiedalek, 2016). This growth rate is in good agreement with the forecasted 4% growth of the company’s revenues. Specific market performance data based on the asset valuation model inputs The application of the different asset valuation models to the forecasted financial performance of the selected companies indicates that the various markets will show a mixed performance in the short run. In this sense, it is noteworthy how the forecasted earnings per share of companies like Apple or Northern Trust will tend to decrease as per the analysis carried out. In contrast, the earnings per share of companies like Caterpillar, Consolidated Edison or Macy's will likely increase shortly. Considering how these companies are among the leaders in their MILESTONE ONE: COMPANY PROFILE 3 respective industries, it is possible to predict that the market will show a similar trend to the forecasted one. Impact of the five-year and current macroeconomic data on asset prices Such a relationship arises from the link existing between the sales of a company, the overall financial results, and the resulting appeal on investors, which will tend to buy or sell the company's stocks. In this regard, this strong relationship existing between the domestic economy and the country's financial market can potentially justify the use of the financial market trend as a predictor of the future performance of the domestic economy. Such a claim focuses on the fact that the most relevant financial crises in the past had been preceded by a rapid decrease in the financial markets (Duca, 2007). As a result, the domestic economy relative to the financial markets may be estimated to remain relatively stable. In this sense, the forecasted earnings per share of the different companies show both an increasing and a decreasing trend, indicating that even while there will be variations in the relative importance of the various industries, the economy as a whole will experience small variations shortly. Company valuation Analysis of the company’s financial items and key ratios According to the study carried out, the target companies show a generally better financial performance than their respective industry averages. In this sense, the attached Excel file illustrates how the companies usually have higher efficiency in handling their debt through either generating higher cash flow or a more effective cost control strategy than the industry average. For example, companies like Apple have a substantially lower debt to EBITDA ratio and higher MILESTONE ONE: COMPANY PROFILE 4 operating cash flow to debt ratio than the industry average, such that the company is more capable of repaying its debt if compared to other companies operating in the same industry. The intrinsic value of assets One common approach used to estimate the intrinsic value of stocks takes into account the earnings per share of the stock. In this regard, Amiri et al. (2016) propose the use of the ratio between the forecasted earnings per share and a coefficient k as a useful tool to estimate the intrinsic fair value of any stock. For this purpose, Amiri et al. (2015) suggest the use of 0.18, 0.15, and 0.12 as reasonable estimates for the rate for the estimation of the base, average, and ceiling prices of the companies, respectively. Applying such rule, the intrinsic value of the selected assets in 2021 would be: Base price (k = 0.18) Average price (k = 0.15) Ceiling price (k = 0.12) Apple $24.14 $28.97 $36.21 Caterpillar $38.77 $46.52 $58.15 Consolidated Edison $16.59 $19.90 $24.88 Northern Trust $ 7.38 $ 8.85 $11.06 Macy’s $52.67 $63.20 $79.00 Stakeholders Key stakeholders The key stakeholders of the company’s financial portfolio are the managers and employees, as they will benefit from the possibility of gaining access to the profits derived from such investment portfolio. MILESTONE ONE: COMPANY PROFILE 5 Common stakeholders The common stakeholders, on the other hand, will be the investors that have purchased the company’s stocks. In this sense, the higher profitability on the long run will indirectly benefit the company’s stakeholders. MILESTONE ONE: COMPANY PROFILE References Duca, G. (2007). The relationship between the stock market and the economy: experience from international financial markets. Bank of Valletta Review, 36(3), 1-12. Amiri, A., Ravanpaknodezh, H., & Jelodari, A. (2016). Comparison of stock valuation models with their intrinsic value in the Tehran Stock Exchange. Marketing and Branding Research, 3(1), 24-40. Apple. (2018). Annual Report. Retrieved October 10, 2018, from https://investor.apple.com/investor-relations/financial-information/default.aspx Caterpillar. (2018). Annual Report. Retrieved October 10, 2018, from https://www.caterpillar.com/en/investors/reports.html Consolidated Edison. (2018). Annual Report. Retrieved October 10, 2018, from http://phx.corporate-ir.net/phoenix.zhtml?c=61493&p=irol-reportsannual Macy’s. (2018). Annual Report. Retrieved October 10, 2018, from http://www.macysinc.com/ir/ Northern Trust. (2018). Annual Report. Retrieved October 10, 2018, from https://www.northerntrust.com/about-us/investor-relations/annual-report 6 MILESTONE ONE: COMPANY PROFILE Feedback Financial Markets: Asset Valuation Model Inputs: I could note interpret nor understand the data in the spreadsheets. Financial Markets: Macroeconomic Data: The content in the spreadsheets is confusing. Company Valuation: Financial Items and Key Ratios: I did not see any discussion of the key ratios in the report. Company Valuation: Intrinsic Value: Review the stocks' intrinsic values for upward revisions. Stakeholders: Key Stakeholders: Who are the major stockholders? 7
Running head: 1 [Title Here, up to 12 Words, on One to Two Lines] 2 [Title Here, up to 12 Words, on One to Two Lines] Company and market analysis: Industry trends The selected companies to potentially form part of the investment portfolio are Apple, Caterpillar, Consolidated Edison, Northern Trust and Macy’s. These companies are among the strongest in their respective industries. In this regard, Apple, Caterpillar, Consolidated Edison, Northern Trust and Macy’s are among the most relevant companies in the telecommunications industry, automobile and truck industry, energy and utility industry, the investment and securities industry, and the retail industry, respectively. These industries have shown a relatively strong performance in the past years. For example, the automobile and truck industry has kept steady growth in the past decade, in significant part due to the result of the expansion of multiple companies into the Chinese market (Plunkett et al., 2018a). They also present very promising expectations. For instance, financial experts have estimated that the revenue of the telecommunications industry will increase by $6.5 trillion by the end of 2018 as the industry keeps attracting more and more customers (Plunket et al., 2018b). As one of the most important companies, the expected industry growth will enable the selected companies to increase their volume of sales, and hence the profitability, on the short run, thus being a promising approach towards the obtention of a high return on the portfolio. Such a positive trend is especially important considering how the analysis carried out comparing the companies with their respective industry averages indicates the strength and better performance of these companies. Among the five selected industries, and taking the collected information into account, the best performant sector would be the telecommunication industry. The fact that the world is 3 currently experiencing a boom in the establishment of new wireless connections and the sales of the devices necessary to establish such relationships represent the ideal scenario for the financial growth of any company operating in the industry. In this regard, customers expect that the volume of sales will continue to increase at an exponential rate shortly, as long as such boom trend remains (Plunkett et al., 2018b). On the other hand, the automobile and truck industry shows a comparative advantage over the remaining three sectors. In this case, the expansion of several companies into the Chinese market and the constant development of more effective machinery products to use in agriculture and construction represent a favorable scenario for companies like Caterpillar. Portfolio: Assets As stated previously, all five markets are expected to show positive results in the near future. Moreover, most financial experts recommend portfolio diversification as one of the best approaches to minimize the risk. From this standpoint, it is recommendable to maintain all five companies as integrant parts in the portfolio. However, considering the identified absolute and comparative advantages, and noting the expected outstanding financial performance of companies like Apple, it is advisable that the portfolio weighs such assets to reflect the observed trends. In this regard, a possible weight allocation would assign a weight of 40% to Apple assets, a 30% to Caterpillar assets, and a 10% to Consolidated Edison, Northern Trust and Macy’s assets, respectively. The weighted portfolio will enable the investor to obtain a high return at a reduced risk on the long run. 4 Portfolio: Securities Companies like Apple have shown a steady positive trend in their volume of sales in the past years. Moreover, as outlined the market previously shows a highly optimistic scenario in which the company would potentially benefit from the existing wireless boom. The fact that nearly everybody wants to own a device to be able to connect to the rest of the world through the Internet implies that the company's sales will continue to increase in the future. Moreover, the high quality of Apple products and the stable customer relationship established by the company ensures that the new customers acquired as a result of such wireless boom will remain using the company's products. As such, it is possible to expect that such an increase in sales will be sustainable in the long run. As shown in table A.1, the company shows a generally better performance than the industry average. For example, Apple seems to be highly efficient at using its assets as indicated by the fact that the debt to assets ratio is substantially lower than the industry average. The calculated intrinsic value of Apple stocks taking these data into account and the observed trend in the historical financial results of the company ranges between $24.14 and $36.21, being the average intrinsic value estimated of $28.97. Portfolio: Rates of return The annual rate of return of Apple stocks in the past year has been of 27.53%, which is substantially higher than the rate of return of the reference market (SP500, 5.76%), once more illustrating the outstanding financial performance of the company (Yahoo Finance, 2018). Moreover, the company shows a 3-year monthly beta coefficient of 1.27, indicating slightly higher volatility in the stock price as compared to the variability of the reference market index 5 (Yahoo Finance, 2018). Additionally, as illustrated from the graph shown in figure A.1, the company’s stock price has increased substantially in the past five years. The calculated annual rate of return as per the discounted cash flow model, on the other hand, would be of -1.51%, calculated considering that the dividend growth rate is lower than the revenue growth rate. 6 References Plunkett, Jack W., Plunkett, M. B., & Snider, I. J. (2018a). Automobile Industry Introduction. Automobiles & Trucks Industry. Retrieved November 3, 2018, from http://www.plunkettresearchonline.com. Plunkett, Jack W., Plunkett, M. B., & Snider, I. J. (2018b). Introduction to the Telecommunications Industry. Telecommunications Industry. Retrieved November 3, 2018, from http://www.plunkettresearchonline.com. Yahoo finance. (2018). Apple Inc. Retrieved November 3, 2018, from https://finance.yahoo.com/quote/AAPL/key-statistics?p=AAPL 7 Table A.1. Comparison of the performance of Apple stocks with the industry average Firm Ind Avg Debt & Coverage Ratios Debt/Assets 0.27 0.46 Debt/Equity 0.59 0.40 Current Assets/Current Liability 1.35 4.05 EBITDA/Interest 0.34 -0.67 Debt/EBITDA 1.23 2.26 Cash Flow Ops/Total Debt 0.76 0.35 Figure A.1. Apple stock price in the past five years 8 Feedback Company and Market Analysis: Industry Trends: Microeconomics Data: There should be more more discussion on the topic. Company and Market Analysis: Industry Trends: Absolute and Relative Performance: A discussion of the key financial ratios is warranted. Portfolio: Securities: Historical: A five-year historical analysis is preferred by most investors. Portfolio: Securities: Intrinsic Value: I did not see intrinsic values for all the securities.
Running head: 1 [Title Here, up to 12 Words, on One to Two Lines] 2 [Title Here, up to 12 Words, on One to Two Lines] Section II. Portfolio As stated in the previous assignments, the optimal portfolio shall result in a high return with limited risk. The analysis carried out illustrated how the most attractive assets from those considered were Apple and Caterpillar. These two companies do not only represent the leading companies of their respective industries but also benefit from other characteristics of their markets (Plunkett et al., 2018a; Plunkett et al., 2018b). In this regard, the experts have estimated that the customer base and hence the volume of sales of the telecommunications industry will increase substantially over the next years as new people in the developing countries purchase a computer or smartphone to navigate the internet (Plunkett et al., 2018a). On the other hand, the reactivation of the economy at a global scale has resulted in the revival of the construction industry, thus presenting a promising perspective for companies that, like Caterpillar, manufacture and sell the machinery used in the construction industry (Plunkett et al., 2018b). From this point of view, the significant weight of the investment portfolio of the company should focus on these two strong assets, with the perspective that the company will share part of the profits obtained from the expansive industries led by Apple and Caterpillar. The remaining assets, on the other hand, would represent a minor fraction of the diversified portfolio. The primary goal of introducing companies like Northern Trust, Consolidated Edison, and Macy's, even with a small weight of just 10% each, would be that of compensating the losses of the other two significant assets in the portfolio. From this point of view, the recommended portfolio composition would be as shown in table 1. 3 Table 1. Recommended portfolio to obtain the maximum return at a reduced risk Stock Weight (%) Return (%) Risk (%) Apple Inc 35 15.79 5.62 Caterpillar 35 12.75 2.06 Consolidated Edison 10 11.16 4.35 Northern Trust 10 20.30 19.21 Macy’s 10 12.19 3.58 According to the reported expected returns and risks of the different assets and considering the different weight associated to the stocks, the anticipated return of the portfolio would be of 14.35%, while the expected risk would be of 1.92%. Executive Summary The analysis carried out evaluates the position of five different companies in an attempt to design the optimal portfolio. The assumptions considered in such design take into account both the situation of the respective markets in which each of the target companies operates and the past financial performance of each of such companies. The selected companies considered in such analysis are Apple, Caterpillar, Consolidated Edison, Northern Trust, and Macy’s. These companies represent the telecommunications industry, the truck manufacturing industry, the banking industry, the energy industry, and the fashion industry. As per the analysis carried out, the most promising approach providing a high return at a limited risk maximizes the contribution of both the telecommunication industry and the truck manufacturing industry to the combined portfolio. Such selection focuses on the expectations of experts according to which both markets will experience a substantial increase in the sales in the 4 next few years, either through the incorporation of new customers to the telecommunication industry or as a result of the reactivation of the economy and the construction industry, which thus requires of the necessary machinery and trucks. Moreover, such a decision is in good agreement with the reported financial results of the two companies, which have already experienced an above average increase in the sales revenue in the past five years. The optimized portfolio would involve the following: 35% of Apple stocks, 35% of Caterpillar stocks, 10% of Consolidated Edison stocks, 10% of Northern Trust stocks, and 10% of Macy's shares. As per the analysis carried out, the expected return of such portfolio over a five year period would be of 14.35% with the risk being of 1.92%. Compared to the investment on any of the most prominent stocks in the portfolio, such combined portfolio results in a similar return while the risk is substantially lower than for any of the five shares included. The obtained result is in good agreement with portfolio management theories, as it demonstrates the suitability of a combined portfolio as compared to the investment in only one stock (Elena et al., 2015). Considering how the proposed portfolio focuses on the evaluation of the rate of return based on variables such as the earnings per share reported by the different companies, the payment of dividends, and the net income, it is necessary to focus on the future variation of these variables in the future. As such, the recommended performance measures to evaluate whether or not the portfolio provides the expected results include: • An analysis of the net income presented by the five companies involved in the portfolio • A review of the reported earnings per share and the dividends paid • A review of the industry trends, such as the introduction of a new company Considering that all the five companies report on a 3-month basis, this seems to be a reasonable period for the periodic evaluation of the performance of the portfolio. 5 6 References Elena, A., Peter, B., Jernej, C., Brad, C., Jaksa, C., & Debrah, M. (2015). Competition in Portfolio Management: Theory and Experiment. MANAGEMENT SCIENCE, 1-36. Plunkett, Jack W., Plunkett, M. B., & Snider, I. J. (2018a). Automobile Industry Introduction. Automobiles & Trucks Industry. Retrieved November 16, 2018, from http://www.plunkettresearchonline.com. Plunkett, Jack W., Plunkett, M. B., & Snider, I. J. (2018b). Introduction to the Telecommunications Industry. Telecommunications Industry. Retrieved November 16, 2018, from http://www.plunkettresearchonline.com. 7 Feedback Portfolio: Risks/Return: The portfolio structure displays a high concentration in two stocks (industries). Executive Summary: Investment Performance: How did you calculate the risk factors?

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Robert__F
School: Carnegie Mellon University

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