Stock valuation Assignment
Note: These questions will help you identify the information and data you need to collect
for your analysis. Please do not include any of these questions in the report. However, the
report should summarize the information collected using these questions.
Section 1: Introduction & Historical Information (chapter 1, 2)
1. Identify a public company that has publicly traded stock (Hint: Choose one public company
from the list of companies provided on canvas). The stock should have been traded for at
least 5 years. The stock should have paid dividends every year from 2015 to 2019. List your
company’s name, ticker symbol, and provide a brief description of the company’s business.
2.
What is the history of the company?
3. How does this firm interact with financial markets? (Hint: it is a public company)
4. How does this firm view its social obligations and manage its image in society?
5. Who are the major shareholders of this company?
6. What is the industry of this company?
Section 2: Corporate performance (chapter 3, 4)
7. Based on the financial statements provided on Yahoo Finance, what is the Price to Earnings
ratios, Return on equity, Profit margin, and Time-interest-earned (Interest coverage) for 2018
and 2019?
8.
Did the Ratios increase or decrease from 2018 to 2019? Based on these ratios, what is the
debt, profitability, market position of your company? (provide a detailed interpretation of
the trend for each ratio)
9. Identify two competitors in the same industry as the selected company. The two competitors
might not be on the list provided on canvas.
10. Using the Yahoo finance, compute the Price to Earnings ratios, return on equity, Timeinterest-earned (Interest coverage), and profit margin for each of the competitors for 2019.
Then, compute the average Price to Earnings ratios, return on equity, Time-interest-earned
(Interest coverage), and profit margin using the two competitors for the year 2019?
11. Using the average ratios as proxies for the industry ratios, Compare the industry ratios to the
ratios of the selected company for 2019. Based on this comparison, what is the debt,
profitability, and market position of your company?
Section 3: Risk and return
12. Using yahoo finance, collect the price for your chosen stock. Then, start on December 31,
2015, and trace the price history for your selected company. Using a graph and a table
showing the price-per-share on December 31st for 2015, 2016, 2017, 2018, and 2019. (Hints:
this should be the stock price on the last trading day of the year).
13. Using yahoo finance, prepare a table and a graph showing the dividend-per-share declared by
the firm during the year 2015, 2016, 2017, 2018, and 2019. (Hints: this should be the total
dividend paid in a year).
14. Using table(s) and graph(s), compute and show the rate of return for the years 2016 through
2019. (Hint: Remember, returns are calculated by subtracting the beginning price from the
ending price to get the capital gain or loss, adding the dividend to the capital gain or loss,
and dividing the result by the beginning price. For example, return in 2016= (price 2016 –
price 2015 + dividend 2016)/price 2016).
15. Compute the average rate of return for your company.
16. What is the beta for your company? Is your company more or less risky than the market?
(Use the most recent value of beta).
17. What is the required rate of return for your company on January 2nd, 2020? For estimating
the required rate of return, assume that the market return is 11.55%, and the risk-free rate is
2.465% (Hint: use CAPM).
18. Compare the average rate of return for your company to the required rate of return of your
company. Is your company overvalued, undervalued or fairly valued?
Section 4: Stock valuation
19. What is the estimated growth rate of dividends from 2017 -2019 to 2023-2025? (Collected
from value line survey)
20. What are the dividends for the year 2020, 2021, and 2023 to 2025? (Collected from value line
survey).
21. Assuming that dividend per share will have a supernormal growth from 2020 to 2021 and the
dividend will have a constant growth starting at the year 2022, Estimate the value of your
stocks on January 2nd, 2020. You can use the required rate of return computed in question 17
for your calculations. (Hint: use the steps for a stock with nonconstant growth).
22. Look up the market price for your stocks on January 2nd,2020, and indicate if your stock was
fairly priced, under-, or over-priced in the market. What action would you take to benefit
from this disparity? If you feel that the market fairly priced your stock, discuss the possible
reasons for your lack of faith in your analysis.
Section 5 Conclusion:
23. Based on the information you gathered, what is your recommendation? Should you sell, buy,
or hold the stocks of this company? Provide at least three strengths and two weaknesses to
support your recommendation. The strengths and weaknesses should be based on the
analysis in sections 1 to 4. Your answer should be at least five sentences.
24. Discuss how the spread of Coronavirus in 2020 might affect your recommendation. Provide
two reasons why the spread of Coronavirus might lead you to change or keep your
recommendation. Your answer should be at least three sentences.
Additional guidelines
Submission Instructions:
Make sure to follow the submission guidelines:
1. Each submission must have two parts. A written report, which explains and interprets the
results from your analysis. And an appendix section which includes all the calculations
2. For both submissions, Remember to put all the calculations in the appendix. You can
refer to them but do not include any calculations in the written report.
3. Provide a complete reference list for each submission.
4. The references and citations should follow the APA format.
5. Each Submission must be typed, double-spaced, with 1-inch margins and 12-point type.
Papers are limited to 6 pages. This does not include the appendix and the references.
6. Each Submission should include a cover sheet with the name of the chosen firm, the
names of the team members, the course number, and the course section.
(NIKE is the Firm)
7. Include the sections headers in both submissions
Useful links:
finance.yahoo.com
https://research.valueline.com/research#sec=library
Value line investment offers free access to the reports for a limited number of firms.
Sample Appendices
Appendix A
Company and Industry ratio
Table 1:The price to earnings ratio
years
Basic Earnings per share
price per share on fiscal year-end
PE
2018
$12.01
$225.74
18.79x
2019
$11.97
$223.97
18.72x
trend Comments
decreased
Table 2:The price to earnings ratio for the industry
years
Basic Earnings per share 2019
price per share on fiscal year-end date
2019
PE
Industry average 2019
Competitor 1 Competitor 2
(Microsoft)
(DELL)
Industry Comments
$5.11
-$3.22
$133.96
26.22x
$48.59
-15.09x
5.56x Better than the industry
Table 3: Profit margin
years
Net income (in thousand)
Sales or total revenues (in thousand)
Profit margin
2018
2019
$59,531,000
$55,256,000
$265,595,000 $260,174,000
22.41%
21.24%
trend Comments
decreased
Table 4:profit margin for the
industry
years
Net income (in thousand) 2019
Sales or total revenues (in thousand) 2019
Profit margin
Industry average 2019
Competitor 1
(Microsoft)
$39,240,000
$125,843,000
31.18%
competitor
2(DELL)
Industry Comments
-$2,310,000
$92,154,000
-2.51%
14.73% Better than the industry
Table 5:Return on equity
years
2018
2019
trend Comments
Net income (in thousand)
common equity or total stockholders’
equity (in thousand)
ROE
$59,531,000
$55,256,000
$107,147,000
$90,488,000
55.56%
61.06%
Competitor 1
(Microsoft)
$39,240,000
competitor
2(DELL)
-$2,310,000
$102,330,000
38.35%
-$2,765,000
83.54%
60.95%
Better than the industry
2019
$63,930,000
$3,576,000
17.88x
decreased
decreased
Table 6: ROE for the industry
years
Net income (in thousand) 2019
common equity or total stockholders’
equity (in thousand)2019
ROE
Industry average 2019
Industry Comments
Table 7:Interest coverage or Time-interest-earned
years
EBIT or operating income
Interest charges or expenses
TIE
2018
$70,898,000
$3,240,000
21.88x
Table 8:Interest coverage or Time-interest-earned for the industry
years
EBIT or operating income (in thousand)
2019
Interest charges or expenses (in thousand)
2019
TIE
Industry average 2019
Competitor 1
(Microsoft)
$42,959,000
$2,686,000
15.99x
competitor
2(DELL)
Industry Comments
-$191,000
$2,488,000
-0.08x
7.96x Better than the industry
Appendix B risk and returns
Price per share
Year
2015 (hint: price on the latest trading date in 2015)
2016 (hint: price on the latest trading date in 2016)
2017 (hint: price on the latest trading date in 2017)
2018 (hint: price on the latest trading date in 2018)
2019 (hint: price on the latest trading date in 2019)
Price per share
105.26
115.82
169.23
157.74
293.65
Dividends per share
Year
2016 ( hint: total dividend in 2016)
2017 ( hint: total dividend in 2017)
2018 ( hint: total dividend in 2018)
2019 ( hint: total dividend in 2019)
Dividend per share
2.23
2.46
2.82
3.04
the rate of return for the years 2015 through 2018
Year
Total return
2016
2017
2018
2019
12.15%
48.24%
-5.12%
88.09%
35.84%
Average return
Apple beta retrieved on 04/21/2020
Beta
risk compare to the market
1.17
more risky
The required rate of return
risk-free return
Market return
Beta
Required rate of return=risk free rate+(Market return-risk free rate ) X beta
Comparison of required returns to the average return
2.47%
11.55%
1.17
13.09%
undervalued
Appendix C: Stock valuation
Historical growth (estimated annual dividend rates for
17-19 to 23-25)
2020 dividend per share
2021 dividend per share
2022 dividend per share ( estimated " Cash flow" per
share for 2023-2025)
the required rate of return
Horizon value in 2021 (dividend for 2022/(average
return -historical growth)
12%
3.18
3.38
5.4
13.09%
493.40
Stock value
2020 dividend per share
2021 dividend per share
Horizon value in 2021
total cash flows
Stock value
Stock price on January 2nd, 2020
2020
3.18
3.18
$391.21
$300.35
undervalued
2021
3.38
493.40
496.78
Appendix D: Graphs
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