University of Central Florida Management of the Apple Inc Discussion Paper

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nynlfuvnter

Economics

University of Central Florida

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Part 5: Weighted Average Cost of Capital (Chapter 13)

  1. Calculate the weights (proportions) of debt and equity for your company. For equity, you should use the market value of stock (number of shares times the current stock price). This is usually called Market Capitalization or Market Cap on websites. For debt, you can use the book value of long-term debt (from the balance sheet). While market values of debt are “better”, they are rather difficult to obtain. If your company has preferred stock, you can ignore it for simplicity.
  2. Estimate the required rate of return on debt for your company. Below are a few of ways to tackle this (points a, b, and c). Be sure to explain which of these methods you used. In other words, be sure I understand how you came up with your estimate of Rb.
    1. On Net Advantage, click on Fixed Income then Summary. On the upper left, you will see their current credit rating. Using that, go to FRED Economic Data by the St. Louis Fed. They have corporate bond data here: https://fred.stlouisfed.org/categories/32348 . You can use the Moody’s Seasoned Bond Yield or the ICE BofAML US Corporate Effective Yield option that best matches your company’s debt rating. For example, Coca Cola is rate A+ (S&P) and A1 (Moody’s), so I would use the ICE BofAML US Corporate A Effective Yield. On the graph, you can hover your cursor over the most recent date. The last number is the yield. It is also shown in the upper left corner of the chart. See your Chapter 13 notes for an example with Coke.
    2. Alternatively, you can take a weighted average using the bonds on Net Advantage. To do this, click on Fixed Income and then Securities Summary. You can click on the Excel icon right above the text Customize View. In Excel, you can use the “Amt. Outstdg. ($mm)” column to find the market values of these bonds. You can use these values to form weights to calculate the weighted average YTM for your firm, with the “Current YTW” as the YTM for the bonds.
    3. If your company does not have publicly traded debt, you will need to read the footnotes to the annual report. You should be able to get an estimated borrowing rate.
  3. For the tax rate, the marginal corporate tax rate is 21%. This will be fine to use unless your company is currently paying significantly less than this amount. You should check their income statement to see what rate they have paid in the past.
  4. Estimate your company’s weighted average cost of capital.

Part 6: Estimating Firm Value (Chapter 13)

  1. Calculate free cash flow for your company for the current year and the past several years. Please note that you MUST use the most recent data available for this portion. In other words, your ratio analysis may use 2019 data but valuation must use 2020 if it released during the semester. You may NOT use FCFs from a website, since most are calculated differently. Examine the historic growth rate in free cash flows for your company. This rate may help you estimate a growth rate for future free cash flows. Be sure to show your historical FCF calculations.
  2. Using the WACC you estimated in Part 5, find the estimated value per share of your company. You will need to assume a growth rate in future free cash flows. You can either assume constant growth from the current year forward or you can assume differing growth rates that eventually stabilize (i.e. stable growth at the horizon). Note that having an estimated growth rate that is larger than the weighted average cost of capital is not sustainable. In this case, you will need to use a two stage approach, where the long-term growth rate at the horizon is smaller than the weighted average cost of capital.
  3. You must write a paragraph justifying your approach and growth rates. For growth rates, you can look at analyst projections (Yahoo Finance under Analysis or Net Advantage under Research or Morningstar under Stock Analysis or other!), your internal/sustainable growth estimates, historical growth rates, and industry growth projections.

Part 7: Strengths, Weaknesses, and Recommendation

Please remember for this last part, you must base recommendations on findings in your report. You may add outside information, but your findings in the project must be the foundation for your recommendations.

  1. Assume you are a financial analyst. In approximately 2-4 pages, you need to summarize the strengths and weaknesses of your company based on the analyses above. It must reflect your calculations. Be sure to assess your firm’s riskiness based on your report.
  2. Prepare a recommendation to a client issuing a buy/hold/sell recommendation for stock in your company. You must pick BUY or SELL or HOLD – you cannot recommend more than one of these. Be sure to justify your recommendation based on your findings in the project. Be sure your recommendation considers your estimated price versus the actual price. For your recommendation, you may also add some non-project information. For example, your recommendation may include information about industry growth potential or emerging technologies or anything relevant that would encourage or discourage you from investing. This should be 1-2 pages in length. You might find it helpful to look at a recommendation on Seeking Alpha, Motley Fool, etc. However, keep in mind that these sites are focused on short-term investing and I’d like you to be thinking more long-term.

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Apple Inc. (NasdaqGS:AAPL) > Financials > Key Stats In Millions of the trading currency, except per share items. Currency: Order: Decimals: Trading Currency Latest on Right Capital IQ (Default) Conversion: Units: Dilution: Historical S&P Capital IQ (Default) Basic Key Financials¹ 12 months Sep-24-2016A USD 12 months Sep-30-2017A USD 12 months Sep-29-2018A USD 12 months Sep-28-2019A USD 12 months Sep-26-2020A USD LTM² 12 months Dec-26-2020A USD 215.639,0 (7,7%) 229.234,0 6,3% 265.595,0 15,9% 260.174,0 (2,0%) 274.515,0 5,5% 294.135,0 9,9% Gross Profit Margin % 84.263,0 39,1% 88.186,0 38,5% 101.839,0 38,3% 98.392,0 37,8% 104.956,0 38,2% 114.067,0 38,8% EBITDA Margin % 70.529,0 32,7% 71.501,0 31,2% 81.801,0 30,8% 76.477,0 29,4% 77.344,0 28,2% 85.159,0 29,0% EBIT Margin % 60.024,0 27,8% 61.344,0 26,8% 70.898,0 26,7% 63.930,0 24,6% 66.288,0 24,1% 74.253,0 25,2% Earnings from Cont. Ops. Margin % 45.687,0 21,2% 48.351,0 21,1% 59.531,0 22,4% 55.256,0 21,2% 57.411,0 20,9% 63.930,0 21,7% Net Income Margin % 45.687,0 21,2% 48.351,0 21,1% 59.531,0 22,4% 55.256,0 21,2% 57.411,0 20,9% 63.930,0 21,7% 2,08 (9,9%) 2,3 10,8% 2,98 29,4% 2,97 (0,3%) 3,28 10,4% 3,69 17,1% USD 1,0 H USD 1,0 H USD 1,0 H USD 1,0 H USD 1,0 H USD 1,0 H For the Fiscal Period Ending Currency Total Revenue Growth Over Prior Year Diluted EPS Excl. Extra Items³ Growth Over Prior Year Currency Exchange Rate Conversion Method ¹All results are taken from the most recently filed statement for each period. When there has been more than one, earlier filings can be viewed on the individual statement pages. ²Growth rates for the LTM period are calculated against the LTM period ending 12 months before. Growth Rates are calculated in originally reported currency only and will not reflect any currency conversion selected above. Latest Capitalization (Millions of USD) Currency Share Price Shares Out. Market Capitalization - Cash & Short Term Investments + Total Debt + Pref. Equity + Total Minority Interest = Total Enterprise Value (TEV) Book Value of Common Equity + Pref. Equity + Total Minority Interest + Total Debt = Total Capital **For companies that have multiple share classes that publicly trade, we are incorporating the different prices to calculate our company level market capitalization. Please click on the value to see the detailed calculation. Prices shown on this page are the close price of the company’s primary stock class. Shares shown on this page are total company as-reported share values. Total Liability includes Total Debt, Minority Interest and Pref. Equity. USD $134,16 16.788,1 2.252.291,0 76.826,0 112.043,0 2.168.763,0 66.224,0 112.043,0 178.267,0 Net Liability includes Total Liability, net of Cash and Short Term Investments. TEV includes Market Cap and Net Liability. Total Capital includes Common Equity and Total Liability. Valuation Multiples based on Current Capitalization 12 months Sep-30-2017A 9,5x 12 months Sep-29-2018A 8,2x 12 months Sep-28-2019A 8,3x 12 months Sep-26-2020A 8,0x LTM 12 months Dec-26-2020A 7,4x TEV/EBITDA 30,3x 26,5x 28,4x 24,8x 25,5x TEV/EBIT 35,4x 30,6x 33,9x 32,9x 29,2x P/Diluted EPS Before Extra 58,3x 45,0x 45,2x 40,9x 36,4x P/BV 20,5x 23,8x 26,4x 34,9x 34,1x Price/Tang BV 20,5x 23,8x 26,4x 34,9x 34,1x For the Fiscal Period Ending TEV/Total Revenue Apple Inc. (NasdaqGS:AAPL) > Financials > Income Statement In Millions of the reported currency, except per share items. Template: Period Type: Currency: Units: Standard Annual Reported Currency S&P Capital IQ (Default) Restatement: Order: Conversion: Decimals: Latest Filings Latest on Right Historical Capital IQ (Default) Income Statement 12 months Sep-24-2016 USD 12 months Sep-30-2017 USD 12 months Sep-29-2018 USD 12 months Sep-28-2019 USD 12 months Sep-26-2020 USD LTM 12 months Dec-26-2020 USD Revenue Other Revenue Total Revenue 215.639,0 215.639,0 229.234,0 229.234,0 265.595,0 265.595,0 260.174,0 260.174,0 274.515,0 274.515,0 294.135,0 294.135,0 Cost Of Goods Sold Gross Profit 131.376,0 84.263,0 141.048,0 88.186,0 163.756,0 101.839,0 161.782,0 98.392,0 169.559,0 104.956,0 180.068,0 114.067,0 14.194,0 10.045,0 - 15.261,0 11.581,0 - 16.705,0 14.236,0 - 18.245,0 16.217,0 - 19.916,0 18.752,0 - 20.350,0 19.464,0 - Other Operating Exp., Total 24.239,0 26.842,0 30.941,0 34.462,0 38.668,0 39.814,0 Operating Income 60.024,0 61.344,0 70.898,0 63.930,0 66.288,0 74.253,0 Interest Expense Interest and Invest. Income Net Interest Exp. (1.456,0) 3.999,0 2.543,0 (2.323,0) 5.201,0 2.878,0 (3.240,0) 5.686,0 2.446,0 (3.576,0) 4.961,0 1.385,0 (2.873,0) 3.763,0 890,0 (2.726,0) 3.465,0 739,0 Currency Exchange Gains (Loss) Other Non-Operating Inc. (Exp.) EBT Excl. Unusual Items (1.195,0) 61.372,0 (133,0) 64.089,0 (441,0) 72.903,0 (784,0) 1.237,0 65.768,0 604,0 (773,0) 67.009,0 1.009,0 (1.436,0) 74.565,0 Impairment of Goodwill Gain (Loss) On Sale Of Invest. Other Unusual Items EBT Incl. Unusual Items 61.372,0 64.089,0 72.903,0 (31,0) 65.737,0 82,0 67.091,0 187,0 74.752,0 Income Tax Expense 15.685,0 15.738,0 13.372,0 10.481,0 9.680,0 10.822,0 For the Fiscal Period Ending Currency Selling General & Admin Exp. R & D Exp. Depreciation & Amort. Other Operating Expense/(Income) Earnings from Cont. Ops. 45.687,0 48.351,0 59.531,0 55.256,0 57.411,0 63.930,0 Earnings of Discontinued Ops. Extraord. Item & Account. Change Net Income to Company 45.687,0 48.351,0 59.531,0 55.256,0 57.411,0 63.930,0 Minority Int. in Earnings Net Income 45.687,0 48.351,0 59.531,0 55.256,0 57.411,0 63.930,0 - - - - - - 45.687,0 45.687,0 48.351,0 48.351,0 59.531,0 59.531,0 55.256,0 55.256,0 57.411,0 57.411,0 63.930,0 63.930,0 Per Share Items Basic EPS Basic EPS Excl. Extra Items Weighted Avg. Basic Shares Out. $2,09 2,09 21.883,3 $2,32 2,32 20.869,0 $3,0 3,0 19.821,5 $2,99 2,99 18.471,3 $3,31 3,31 17.352,1 $3,72 3,72 17.170,9 Diluted EPS Diluted EPS Excl. Extra Items Weighted Avg. Diluted Shares Out. $2,08 2,08 22.001,1 $2,3 2,3 21.006,8 $2,98 2,98 20.000,4 $2,97 2,97 18.595,7 $3,28 3,28 17.528,2 $3,69 3,69 17.352,0 $1,75 1,74 $1,92 1,91 $2,3 2,28 $2,23 2,21 $2,41 2,39 $2,71 2,69 $0,55 26,6% $0,6 26,4% $0,68 23,0% $0,75 25,6% $0,8 24,5% $0,81 22,1% 0,1 0,1 0,1 0,1 0,1 0,1 Supplemental Items EBITDA EBITA EBIT EBITDAR As Reported Total Revenue* Effective Tax Rate % Current Domestic Taxes Current Foreign Taxes Total Current Taxes Deferred Domestic Taxes Deferred Foreign Taxes Total Deferred Taxes 70.529,0 60.024,0 60.024,0 71.468,0 NA 25,6% 8.642,0 2.105,0 10.747,0 4.905,0 33,0 4.938,0 71.501,0 61.344,0 61.344,0 72.601,0 229.234,0 24,6% 8.101,0 1.671,0 9.772,0 5.982,0 (16,0) 5.966,0 81.801,0 70.898,0 70.898,0 83.001,0 265.595,0 18,3% 41.976,0 3.986,0 45.962,0 (33.771,0) 1.181,0 (32.590,0) 76.477,0 63.930,0 63.930,0 77.777,0 260.174,0 15,9% 6.859,0 3.962,0 10.821,0 (3.006,0) 2.666,0 (340,0) 77.344,0 66.288,0 66.288,0 88.144,0 274.515,0 14,4% 6.761,0 3.134,0 9.895,0 (3.598,0) 3.383,0 (215,0) 85.159,0 74.253,0 74.253,0 NA 294.135,0 14,5% 6.761,0 3.134,0 9.895,0 (3.598,0) 3.383,0 (215,0) Normalized Net Income 38.357,5 40.055,6 45.564,4 41.105,0 41.880,6 46.603,1 Pref. Dividends and Other Adj. NI to Common Incl Extra Items NI to Common Excl. Extra Items Normalized Basic EPS Normalized Diluted EPS Dividends per Share Payout Ratio % Shares per Depository Receipt Interest on Long Term Debt Filing Date Restatement Type Calculation Type Supplemental Operating Expense Items R&D Exp. Net Rental Exp. Imputed Oper. Lease Interest Exp. Imputed Oper. Lease Depreciation Stock-Based Comp., COGS Stock-Based Comp., R&D Exp. Stock-Based Comp., SG&A Exp. Stock-Based Comp., Unallocated Stock-Based Comp., Total 1.400,0 Nov-05-2018 NC REP 2.200,0 Oct-31-2019 NC REP 3.000,0 Oct-30-2020 NC REP 3.200,0 Oct-30-2020 NC REP 2.800,0 Oct-30-2020 O REP NA Jan-28-2021 O LTM 10.045,0 939,0 144,5 794,5 11.581,0 1.100,0 201,7 898,3 14.236,0 1.200,0 270,3 929,7 16.217,0 1.300,0 334,2 965,8 18.752,0 10.800,0 2.155,4 8.644,6 19.464,0 NA - 769,0 1.889,0 1.552,0 4.210,0 4.840,0 4.840,0 5.340,0 5.340,0 6.068,0 6.068,0 6.829,0 6.829,0 7.139,0 7.139,0 * Occasionally, certain items classified as Revenue by the company will be re-classified as other income if it is deemed to be non-recurring and unrelated to the core business of the firm. This field shows Total Revenue e Note: For multiple class companies, per share items are primary class equivalent, and for foreign companies listed as primary ADRs, per share items are ADR-equivalent. Apple Inc. (NasdaqGS:AAPL) > Financials > Balance Sheet In Millions of the reported currency, except per share items. Template: Period Type: Currency: Units: Standard Annual Reported Currency S&P Capital IQ (Default) Balance Sheet Balance Sheet as of: Restatement: Order: Conversion: Decimals: Latest Filings Latest on Right Historical Capital IQ (Default) Sep-24-2016 USD Sep-30-2017 USD Reclassified Sep-29-2018 USD Sep-28-2019 USD Sep-26-2020 USD Dec-26-2020 USD 20.484,0 46.671,0 67.155,0 20.289,0 53.892,0 74.181,0 25.913,0 40.388,0 66.301,0 48.844,0 51.713,0 100.557,0 38.016,0 52.927,0 90.943,0 36.010,0 40.816,0 76.826,0 15.754,0 13.545,0 29.299,0 17.874,0 17.799,0 35.673,0 23.186,0 25.809,0 48.995,0 22.926,0 22.878,0 45.804,0 16.120,0 21.325,0 37.445,0 27.101,0 31.519,0 58.620,0 Inventory Restricted Cash Other Current Assets Total Current Assets 2.132,0 8.283,0 106.869,0 4.855,0 13.936,0 128.645,0 3.956,0 12.087,0 131.339,0 4.106,0 23,0 12.329,0 162.819,0 4.061,0 36,0 11.228,0 143.713,0 4.973,0 13.687,0 154.106,0 Gross Property, Plant & Equipment Accumulated Depreciation Net Property, Plant & Equipment 61.245,0 (34.235,0) 27.010,0 75.076,0 (41.293,0) 33.783,0 90.403,0 (49.099,0) 41.304,0 95.957,0 (58.579,0) 37.378,0 112.096,0 (66.760,0) 45.336,0 105.493,0 (67.560,0) 37.933,0 Long-term Investments Goodwill Other Intangibles Other Long-Term Assets Total Assets 170.430,0 5.414,0 3.206,0 8.757,0 321.686,0 194.714,0 18.177,0 375.319,0 170.799,0 22.283,0 365.725,0 105.341,0 32.978,0 338.516,0 100.887,0 33.952,0 323.888,0 118.745,0 43.270,0 354.054,0 37.294,0 21.864,0 8.105,0 3.500,0 8.080,0 163,0 44.242,0 11.977,0 6.496,0 7.548,0 30.551,0 55.888,0 11.964,0 8.784,0 5.966,0 33.327,0 46.236,0 5.980,0 10.260,0 5.522,0 37.720,0 42.296,0 4.996,0 8.773,0 1.460,0 6.643,0 41.224,0 63.846,0 5.000,0 7.762,0 7.395,0 48.504,0 Currency ASSETS Cash And Equivalents Short Term Investments Total Cash & ST Investments Accounts Receivable Other Receivables Total Receivables LIABILITIES Accounts Payable Accrued Exp. Short-term Borrowings Curr. Port. of LT Debt Curr. Port. of Leases Unearned Revenue, Current Other Current Liabilities Total Current Liabilities 79.006,0 100.814,0 115.929,0 105.718,0 105.392,0 132.507,0 Long-Term Debt Long-Term Leases Unearned Revenue, Non-Current Def. Tax Liability, Non-Curr. Other Non-Current Liabilities Total Liabilities 75.427,0 2.930,0 26.019,0 10.055,0 193.437,0 97.207,0 2.836,0 31.504,0 8.911,0 241.272,0 93.735,0 48.914,0 258.578,0 91.807,0 50.503,0 248.028,0 98.667,0 8.382,0 46.108,0 258.549,0 99.281,0 56.042,0 287.830,0 Common Stock Additional Paid In Capital Retained Earnings Treasury Stock Comprehensive Inc. and Other Total Common Equity 31.251,0 96.364,0 634,0 128.249,0 35.867,0 98.330,0 (150,0) 134.047,0 40.201,0 70.400,0 (3.454,0) 107.147,0 45.174,0 45.898,0 (584,0) 90.488,0 50.779,0 14.966,0 (406,0) 65.339,0 51.744,0 14.301,0 179,0 66.224,0 Total Equity 128.249,0 134.047,0 107.147,0 90.488,0 65.339,0 66.224,0 Total Liabilities And Equity 321.686,0 375.319,0 365.725,0 338.516,0 323.888,0 354.054,0 21.329,3 21.344,7 $6,01 119.629,0 $5,6 87.032,0 (150.553,0) 7.512,0 FIFO 10.185,0 44.543,0 6.517,0 116.000 53,0 Nov-05-2018 NC RUP 20.537,2 20.504,8 $6,54 134.047,0 $6,54 115.680,0 (153.215,0) 8.800,0 FIFO 13.587,0 54.210,0 7.279,0 123.000 NA Oct-31-2019 NC RUP 18.981,6 19.019,9 $5,63 107.147,0 $5,63 114.483,0 (122.617,0) 9.600,0 FIFO 16.216,0 65.982,0 8.205,0 132.000 NA Oct-30-2020 RC RUP 17.773,1 17.772,9 $5,09 90.488,0 $5,09 108.047,0 (97.851,0) 10.400,0 FIFO 17.085,0 69.797,0 9.075,0 137.000 NA Oct-30-2020 NC REP 17.001,8 16.976,8 $3,85 65.339,0 $3,85 122.278,0 (69.552,0) 86.400,0 FIFO 17.952,0 75.291,0 10.283,0 147.000 NA Oct-30-2020 O REP 16.788,1 16.823,3 $3,94 66.224,0 $3,94 112.043,0 (83.528,0) NA NA 18.885,0 76.224,0 10.384,0 NA NA Jan-28-2021 O REP Supplemental Items Total Shares Out. on Filing Date Total Shares Out. on Balance Sheet Date Book Value/Share Tangible Book Value Tangible Book Value/Share Total Debt Net Debt Debt Equivalent Oper. Leases Inventory Method Land Machinery Leasehold Improvements Full Time Employees Accum. Allowance for Doubtful Accts Filing Date Restatement Type Calculation Type Note: For multiple class companies, total share counts are primary class equivalent, and for foreign companies listed as primary ADRs, total share counts are ADR-equivalent. Apple Inc. (NasdaqGS:AAPL) > Financials > Cash Flow In Millions of the reported currency, except per share items. Template: Period Type: Currency: Units: Standard Annual Reported Currency S&P Capital IQ (Default) Restatement: Order: Conversion: Decimals: Latest Filings Latest on Right Historical Capital IQ (Default) Cash Flow Restated 12 months Sep-24-2016 USD Restated 12 months Sep-30-2017 USD 12 months Sep-29-2018 USD 12 months Sep-28-2019 USD 12 months Sep-26-2020 USD LTM 12 months Dec-26-2020 USD Net Income Depreciation & Amort. Depreciation & Amort., Total 45.687,0 10.505,0 10.505,0 48.351,0 10.157,0 10.157,0 59.531,0 10.903,0 10.903,0 55.256,0 12.547,0 12.547,0 57.411,0 11.056,0 11.056,0 63.930,0 10.906,0 10.906,0 Stock-Based Compensation Other Operating Activities Change in Acc. Receivable Change In Inventories Change in Acc. Payable Change in Unearned Rev. Change in Other Net Operating Assets Cash from Ops. 4.210,0 5.424,0 527,0 217,0 2.117,0 (1.554,0) (902,0) 66.231,0 4.840,0 5.800,0 (2.093,0) (2.723,0) 8.966,0 (593,0) (8.480,0) 64.225,0 5.340,0 (33.034,0) (5.322,0) 828,0 9.175,0 (3,0) 30.016,0 77.434,0 6.068,0 (992,0) 245,0 (289,0) (1.923,0) (625,0) (896,0) 69.391,0 6.829,0 (312,0) 6.917,0 (127,0) (4.062,0) 2.081,0 881,0 80.674,0 7.139,0 146,0 (6.043,0) (1.049,0) 18.697,0 2.437,0 (7.242,0) 88.921,0 Capital Expenditure Cash Acquisitions Divestitures Invest. in Marketable & Equity Securt. Net (Inc.) Dec. in Loans Originated/Sold Other Investing Activities Cash from Investing (12.734,0) (297,0) (32.022,0) (924,0) (45.977,0) (12.451,0) (329,0) (33.542,0) (124,0) (46.446,0) (13.313,0) (721,0) 30.845,0 (745,0) 16.066,0 (10.495,0) (624,0) 58.093,0 (1.078,0) 45.896,0 (7.309,0) (1.524,0) 5.335,0 (791,0) (4.289,0) (8.702,0) (575,0) 10.452,0 (380,0) 795,0 24.954,0 24.954,0 (397,0) (2.500,0) (2.897,0) 3.852,0 28.662,0 32.514,0 (3.500,0) (3.500,0) 6.969,0 6.969,0 (37,0) (6.500,0) (6.537,0) 6.963,0 6.963,0 (5.977,0) (8.805,0) (14.782,0) 16.091,0 16.091,0 (963,0) (12.629,0) (13.592,0) 13.903,0 (12.613,0) 495,0 (31.292,0) 555,0 (34.774,0) 669,0 (75.265,0) 781,0 (69.714,0) 880,0 (75.992,0) 878,0 (81.543,0) For the Fiscal Period Ending Currency Short Term Debt Issued Long-Term Debt Issued Total Debt Issued Short Term Debt Repaid Long-Term Debt Repaid Total Debt Repaid Issuance of Common Stock Repurchase of Common Stock Common Dividends Paid Total Dividends Paid (12.150,0) (12.150,0) (12.769,0) (12.769,0) (13.712,0) (13.712,0) (14.119,0) (14.119,0) (14.081,0) (14.081,0) (14.155,0) (14.155,0) Special Dividend Paid Other Financing Activities Cash from Financing (20.890,0) (17.974,0) (87.876,0) (105,0) (90.976,0) (126,0) (86.820,0) (132,0) (93.662,0) (636,0) (195,0) 5.624,0 24.311,0 (10.435,0) (3.946,0) 1.316,0 10.444,0 44.058,0 44.968,0 (5.472,0) 22.057,0 Nov-05-2018 RS REP 2.092,0 11.591,0 39.624,1 41.076,0 (190,0) 29.014,0 Oct-31-2019 RS REP 3.022,0 10.417,0 47.482,3 49.507,3 (2.266,0) 432,0 Oct-30-2020 NC REP 3.423,0 15.263,0 42.914,3 45.149,3 2.927,0 (7.819,0) Oct-30-2020 NC REP 3.002,0 9.501,0 60.387,4 62.183,0 (10.177,0) 2.499,0 Oct-30-2020 O REP 2.850,0 6.895,0 66.893,4 68.597,1 (12.846,0) 1.290,0 Jan-28-2021 O LTM Net Change in Cash Supplemental Items Cash Interest Paid Cash Taxes Paid Levered Free Cash Flow Unlevered Free Cash Flow Change in Net Working Capital Net Debt Issued Filing Date Restatement Type Calculation Type Apple Inc. (NasdaqGS:AAPL) > Financials > Ratios Restatement: Order: Latest Filings Latest on Right Period Type: Decimals: Annual Capital IQ (Default) Ratios 12 months Sep-24-2016 12 months Sep-30-2017 12 months Sep-29-2018 12 months Sep-28-2019 12 months Sep-26-2020 LTM 12 months Dec-26-2020 Profitability Return on Assets % Return on Capital % Return on Equity % Return on Common Equity % 12,3% 18,8% 36,9% 36,9% 11,0% 16,5% 36,9% 36,9% 12,0% 18,8% 49,4% 49,4% 11,3% 19,0% 55,9% 55,9% 12,5% 21,5% 73,7% 73,7% 13,4% 24,1% 82,1% 82,1% Margin Analysis Gross Margin % SG&A Margin % EBITDA Margin % EBITA Margin % EBIT Margin % Earnings from Cont. Ops Margin % Net Income Margin % Net Income Avail. for Common Margin % Normalized Net Income Margin % Levered Free Cash Flow Margin % Unlevered Free Cash Flow Margin % 39,1% 6,6% 32,7% 27,8% 27,8% 21,2% 21,2% 21,2% 17,8% 20,4% 20,9% 38,5% 6,7% 31,2% 26,8% 26,8% 21,1% 21,1% 21,1% 17,5% 17,3% 17,9% 38,3% 6,3% 30,8% 26,7% 26,7% 22,4% 22,4% 22,4% 17,2% 17,9% 18,6% 37,8% 7,0% 29,4% 24,6% 24,6% 21,2% 21,2% 21,2% 15,8% 16,5% 17,4% 38,2% 7,3% 28,2% 24,1% 24,1% 20,9% 20,9% 20,9% 15,3% 22,0% 22,7% 38,8% 6,9% 29,0% 25,2% 25,2% 21,7% 21,7% 21,7% 15,8% 22,7% 23,3% Asset Turnover Total Asset Turnover Fixed Asset Turnover Accounts Receivable Turnover Inventory Turnover 0,7x 8,7x 13,2x 58,6x 0,7x 7,5x 13,6x 40,4x 0,7x 7,1x 12,9x 37,2x 0,7x 6,6x 11,3x 40,1x 0,8x 6,6x 14,1x 41,5x 0,8x 7,2x 12,2x 39,7x Short Term Liquidity Current Ratio Quick Ratio Cash from Ops. to Curr. Liab. Avg. Days Sales Out. Avg. Days Inventory Out. Avg. Days Payable Out. Avg. Cash Conversion Cycle 1,4x 1,2x 0,8x 27,5 6,2 101,0 (67,3) 1,3x 1,1x 0,6x 27,2 9,2 105,2 (68,8) 1,1x 1,0x 0,7x 28,1 9,8 111,9 (74,0) 1,5x 1,4x 0,7x 32,3 9,1 114,8 (73,5) 1,4x 1,2x 0,8x 25,9 8,8 95,1 (60,4) 1,2x 1,0x 0,7x 29,7 9,2 109,6 (70,7) For the Fiscal Period Ending Long Term Solvency Total Debt/Equity Total Debt/Capital LT Debt/Equity LT Debt/Capital Total Liabilities/Total Assets EBIT / Interest Exp. EBITDA / Interest Exp. (EBITDA-CAPEX) / Interest Exp. Total Debt/EBITDA Net Debt/EBITDA Total Debt/(EBITDA-CAPEX) Net Debt/(EBITDA-CAPEX) Altman Z Score Growth Over Prior Year Total Revenue Gross Profit EBITDA EBITA EBIT Earnings from Cont. Ops. Net Income Normalized Net Income Diluted EPS before Extra Accounts Receivable Inventory Net PP&E Total Assets Tangible Book Value Common Equity Cash from Ops. Capital Expenditures Levered Free Cash Flow Unlevered Free Cash Flow Dividend per Share Compound Annual Growth Rate Over Two Years Total Revenue Gross Profit EBITDA EBITA 67,9% 40,4% 58,8% 35,0% 60,1% 86,3% 46,3% 72,5% 38,9% 64,3% 106,8% 51,7% 87,5% 42,3% 70,7% 119,4% 54,4% 101,5% 46,2% 73,3% 187,1% 65,2% 163,8% 57,1% 79,8% 169,2% 62,9% 149,9% 55,7% 81,3% 41,2x 48,4x 39,7x 1,2x NM 1,5x NM 26,4x 30,8x 25,4x 1,6x NM 2,0x NM 21,9x 25,2x 21,1x 1,4x NM 1,7x NM 17,9x 21,4x 18,5x 1,4x NM 1,6x NM 23,1x 30,7x 28,1x 1,4x NM 1,5x NM 27,2x 31,2x 28,0x 1,3x NM 1,5x NM 3,6 3,39 3,8 3,95 5,0 5,05 (7,7%) (10,0%) (14,5%) (17,2%) (15,7%) (14,4%) (14,4%) (15,4%) (9,9%) 6,3% 4,7% 1,4% 2,2% 2,2% 5,8% 5,8% 4,4% 10,8% 15,9% 15,5% 14,4% 15,6% 15,6% 23,1% 23,1% 13,8% 29,4% (2,0%) (3,4%) (6,5%) (9,8%) (9,8%) (7,2%) (7,2%) (9,8%) (0,3%) 5,5% 6,7% 1,1% 3,7% 3,7% 3,9% 3,9% 1,9% 10,4% 9,9% 12,3% 9,0% 12,2% 12,2% 11,1% 11,1% 10,1% 17,1% (6,5%) (9,2%) 20,2% 10,8% 13,5% 127,7% 25,1% 16,7% 29,7% (18,5%) 22,3% (2,6%) (1,1%) 3,8% (9,5%) (7,4%) (29,7%) (1,1%) 21,3% (4,3%) 29,2% 21,4% (14,4%) 3,9% 8,4% 7,5% (18,5%) 13,2% (21,1%) (20,2%) 10,1% 12,1% 4,5% (3,0%) (2,2%) (10,1%) (8,7%) 10,1% (20,1%) (20,1%) 20,6% 6,9% 19,8% 20,5% 13,3% (15,5%) (15,5%) (10,4%) (21,2%) (9,6%) (8,8%) 10,3% (27,8%) (27,8%) 16,3% (30,4%) 40,7% 37,7% 6,0% (26,0%) (26,0%) 21,4% (5,9%) 46,7% 43,6% 6,3% 8,6% 9,3% 8,0% 5,8% (1,0%) (2,9%) (6,9%) (8,0%) 11,0% 9,9% 7,7% 8,7% 6,5% 5,6% 3,4% 2,1% 1,7% 1,5% (2,8%) (3,3%) 6,0% 6,8% 3,5% 4,5% EBIT Earnings from Cont. Ops. Net Income Normalized Net Income Diluted EPS before Extra 6,9% 7,5% 7,5% 7,1% 13,5% (7,2%) (4,8%) (4,8%) (6,0%) (0,1%) 8,7% 14,1% 14,1% 9,0% 19,8% 2,1% 6,9% 6,9% 1,3% 13,6% (3,3%) (1,8%) (1,8%) (4,1%) 4,9% 4,5% 3,7% 3,7% 3,3% 10,3% Accounts Receivable Inventory Net PP&E Total Assets (5,0%) 0,5% 14,4% 17,8% 3,0% 43,8% 22,6% 13,7% 21,3% 36,2% 23,7% 6,6% 13,3% (8,0%) 5,2% (5,0%) (16,6%) 1,3% 4,8% (5,9%) 22,4% (0,2%) (2,1%) (2,7%) Tangible Book Value Common Equity Cash from Ops. Capital Expenditures Levered Free Cash Flow Unlevered Free Cash Flow Dividend per Share 7,9% 7,2% 5,3% 15,3% 10,1% 10,8% 9,4% 10,2% 6,0% (11,1%) 5,2% (15,8%) (14,6%) 10,1% (5,4%) (8,6%) 8,1% 2,2% 3,8% 4,9% 11,7% (17,8%) (17,8%) 3,9% (8,2%) 4,1% 4,8% 11,8% (21,9%) (21,9%) 2,1% (25,9%) 12,8% 12,1% 8,1% (25,1%) (25,1%) 8,3% (20,8%) 21,7% 20,5% 7,0% 8,1% 9,4% 8,1% 6,3% 7,0% 7,2% 7,2% 7,0% 13,5% 7,8% 7,7% 5,8% 4,6% 5,3% 7,0% 7,0% 6,2% 12,6% 4,4% 2,8% (0,3%) (0,8%) (0,2%) 3,7% 3,7% 0,2% 8,9% 6,5% 5,3% 2,7% 2,1% 2,1% 6,5% 6,5% 2,3% 12,7% 6,2% 6,0% 2,7% 2,6% 2,6% 5,9% 5,9% 1,5% 12,5% 7,1% 7,5% 4,7% 4,9% 4,9% 8,2% 8,2% 3,8% 15,0% Accounts Receivable Inventory Net PP&E Total Assets 6,3% 6,5% 17,6% 15,8% 0,8% 32,0% 17,9% 17,4% 11,2% 19,0% 22,5% 8,0% 13,3% 24,4% 11,4% 1,7% (3,4%) (5,8%) 10,3% (4,8%) 5,0% 4,0% 4,0% (4,5%) Tangible Book Value Common Equity Cash from Ops. Capital Expenditures Levered Free Cash Flow Unlevered Free Cash Flow Dividend per Share 0,5% 1,3% 7,3% 16,0% 11,9% 12,6% 10,0% 9,3% 6,3% 2,5% 9,2% 2,9% 3,9% 9,7% (1,0%) (3,5%) (1,6%) 5,8% (5,3%) (4,2%) 11,2% (8,9%) (11,0%) 1,6% (6,2%) (0,9%) 0,1% 11,2% (21,3%) (21,3%) 7,9% (16,3%) 15,1% 14,8% 9,8% (20,6%) (22,1%) 10,8% (10,0%) 14,1% 13,7% 9,5% 14,8% 14,0% 7,9% 5,1% 9,2% 9,6% 7,3% 6,9% 3,3% 2,3% 4,6% 3,9% Compound Annual Growth Rate Over Three Years Total Revenue Gross Profit EBITDA EBITA EBIT Earnings from Cont. Ops. Net Income Normalized Net Income Diluted EPS before Extra Compound Annual Growth Rate Over Five Years Total Revenue Gross Profit EBITDA EBITA EBIT Earnings from Cont. Ops. Net Income Normalized Net Income Diluted EPS before Extra 14,6% 12,1% 12,2% 12,0% 12,0% 12,4% 16,0% 4,1% 1,9% 2,1% 3,0% 3,0% 2,8% 7,9% 8,0% 7,3% 7,7% 10,0% 10,0% 7,8% 16,0% 4,8% 3,6% 4,0% 6,9% 6,9% 4,2% 13,0% (1,3%) (1,8%) (1,4%) 1,5% 1,5% (1,6%) 7,3% 0,6% 0,5% 0,9% 3,5% 3,5% 0,5% 9,4% Accounts Receivable Inventory Net PP&E Total Assets 24,0% 22,4% 28,3% 22,6% 10,3% 43,7% 16,9% 16,3% 12,1% 17,5% 20,0% 12,1% 5,6% 14,2% 12,6% 7,9% (0,9%) 11,6% 15,1% 2,2% 15,9% 15,2% 11,2% 3,8% Tangible Book Value Common Equity Cash from Ops. Capital Expenditures Levered Free Cash Flow Unlevered Free Cash Flow Dividend per Share 10,6% 10,9% 12,0% 24,5% 16,1% 16,5% NA 3,5% 2,5% 4,8% 8,5% 4,9% 5,6% 44,6% (1,9%) (2,8%) 7,6% 10,3% 8,6% 9,5% 10,6% (2,5%) (4,1%) 3,0% 1,9% 3,4% 4,3% 10,5% (10,0%) (11,4%) (0,1%) (8,3%) 1,6% 2,0% 9,9% (11,1%) (12,4%) 3,5% (5,7%) 3,4% 3,7% 9,7% Times Series Ratio Analysis Company Name: Apple Inc. FY 2017 FY 2018 FY 2019 FY 2020 1.30 1.10 0.60 1.10 1.00 0.70 1.50 1.40 0.70 1.40 1.20 0.80 Long-term Solvency Total Debt Ratio Debt to Equity Times Interest Earned Cash Coverage 64.30% 86.30% 26.40 30.80 70.70% 106.80% 21.90 25.20 73.30% 119.40% 17.90 21.40 79.80% 187.10% 23.10 30.70 Asset Management Inventory TO Days in Inventory Receivables TO Avg Collection Period Total Asset TO 40.40 9.20 13.60 27.20 0.70 37.20 9.80 12.90 28.10 0.70 40.10 9.10 11.30 32.30 0.70 41.50 8.80 14.10 25.90 0.80 21.10% 11.00% 36.90% 31.20% 22.40% 12.00% 49.40% 30.80% 21.20% 11.30% 55.90% 29.40% 20.90% 12.50% 73.70% 28.20% Liquidity Current Ratio Quick Ratio Cash Ratio Profitability Profit Margin ROA ROE EBITDA Margin Industry Analysis Company Name: Apple Inc. Your Company FY 2019 FY 2020 Liquidity Current Ratio Quick Ratio Cash Ratio Industry Average FY 2019 FY 2020 2.7000 1.5000 0.7000 2.5000 1.4000 0.8000 2.7000 1.5000 0.7000 2.5000 1.4000 0.8000 Long-term Solvency Total Debt Ratio Debt to Equity Times Interest Earned Cash Coverage 0.2710 0.0870 35.9000 73.8000 0.2840 0.0850 54.4000 98.7000 0.2710 0.0870 35.9000 73.8000 0.2840 0.0850 54.4000 98.7000 Asset Management Inventory TO Days in Inventory Receivables TO Avg Collection Period Total Asset TO 7.9000 47.7000 6.8000 52.5000 0.9000 7.0000 48.8000 7.3000 50.2000 0.9000 7.9000 47.7000 6.8000 52.5000 0.9000 7.0000 48.8000 7.3000 50.2000 0.9000 0.0870 0.0530 0.1860 0.2320 0.1020 0.0620 0.2040 0.2570 0.0870 0.0530 0.1860 0.2320 0.1020 0.0620 0.2040 0.2570 Profitability Profit Margin ROA ROE EBITDA Margin A Financial Analysis of ExxonMobil FIN 6406 15 April 2019 Page | 1 Table of Contents Part 1: The Company ................................................................................................................................. 2 Part 2: Financial Planning & Analysis ...................................................................................................... 6 Part 3: Pricing with Comparables ............................................................................................................. 8 Part 4: Capital Asset Pricing Model .......................................................................................................... 9 Part 5: Weighted Average Cost of Capital ............................................................................................. 10 Part 6: Estimating Firm Value ................................................................................................................ 11 Part 7: Strengths, Weaknesses, and Recommendation.......................................................................... 13 Page | 2 Part 1: The Company ExxonMobil is a global, vertically integrated oil and gas company, with roots that trace back to John D. Rockefeller’s Standard Oil Company. In 1999, the Exxon Corporation merged with Mobil Oil to form the ExxonMobil Corporation, at the time creating the world’s largest oil company and the third largest company in the world. Nowadays, ExxonMobil is recognized as a part of “Big Oil,” a term that dates back to the 1960s and is used to categorize the five largest publicly owned oil and gas corporations in the world. In addition to being one of the world’s largest producers of oil, its residual products and chemical feedstocks, their 2018 Results and Highlights report show that ExxonMobil had their best year since 2014 in terms of revenue. On the operations and production front, ExxonMobil produced 3,833 thousand barrels of oil-equivalent product in 2018 and refined an average of 4,272 thousand barrels of crude per day. With oil and gas explorations taking place on six of the seven continents and operating facilities in a large percentage of countries, it is no wonder that ExxonMobil sets themselves apart as a global leader in both energy generation and chemical manufacturing. Page | 3 Times Series Ratio Analysis Company Name: ExxonMobil FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 0.8186 0.5048 0.6980 0.7897 0.4369 0.5622 0.8694 0.5259 0.4635 0.8159 0.4981 0.5204 0.8396 0.4855 0.6303 Long-term Solvency Total Debt Ratio Debt to Equity Times Interest Earned Cash Coverage 48.19% 16.08% 119.1678 179.6469 47.50% 21.88% 46.4148 104.4469 47.37% 24.60% 10.0132 51.3113 44.22% 21.77% 23.4176 53.1897 42.65% 19.04% 28.1188 51.6762 Asset Management Inventory TO Days in Inventory Receivables TO Avg Collection Period Total Asset TO 14.3148 25.4978 16.3813 22.2814 1.0477 9.9386 36.7252 15.0928 24.1834 0.7036 8.4762 43.1792 13.7060 26.7034 0.6015 9.9185 36.7997 12.7141 28.7080 0.6986 10.6121 34.3947 13.6553 26.7293 0.8040 Profitability Profit Margin ROA ROE EBITDA Margin 8.92% 6.12% 18.59% 14.09% 6.69% 2.63% 9.25% 13.46% 3.91% 0.85% 4.78% 11.59% 8.31% 2.59% 10.78% 13.48% 7.46% 3.87% 10.90% 14.17% Liquidity Current Ratio Quick Ratio Cash Ratio Page | 4 Industry Analysis Company Name: ExxonMobil ExxonMobil FY 2016 FY 2017 Liquidity Current Ratio Quick Ratio Cash Ratio Industry Average FY 2016 FY 2017 0.8694 0.5259 0.4635 0.8159 0.4981 0.5204 1.4000 1.4000 0.7000 1.3000 1.4000 0.7000 Long-term Solvency Total Debt Ratio Debt to Equity Times Interest Earned Cash Coverage 0.4737 0.2460 10.0132 51.3113 0.4422 0.2177 23.4176 53.1897 0.5770 0.8570 3.4000 6.5000 0.5520 0.7080 5.3000 8.8000 Asset Management Inventory TO Days in Inventory Receivables TO Avg Collection Period Total Asset TO 8.4762 43.1792 13.7060 26.7034 0.6015 9.9185 36.7997 12.7141 28.7080 0.6986 7.7000 42.0000 11.4000 28.7000 0.6000 8.8000 44.2000 11.8000 31.4000 0.7000 0.0391 0.0085 0.0478 0.1159 0.0831 0.0259 0.1078 0.1348 0.0440 0.0150 0.0250 0.1490 0.0990 0.0270 0.0620 0.1830 Profitability Profit Margin ROA ROE EBITDA Margin Page | 5 Part 2: Financial Planning & Analysis In the tables above, an analysis of ExxonMobil’s liquidity, solvency, asset management and profitability margins were tracked over the last several years, and then compared to the industry average for financial years 2016 and 2017. On first glance it becomes clear that 2014 was a five-year high for many of the ratios and 2016 was the corresponding five-year low for the ratios and they have seen mixed movement since. Usually, it is optimal to have a current ratio greater than one, however ExxonMobil has current ratios of 0.8694 and 0.8159 in FY 2016 and 17, respectively. This means they aren’t holding enough assets to cover their liabilities. This decrease can be attributed to Exxon’s current liabilities experiencing more growth, about $10 million, than their current assets, which only increased by about $6 million between 2016 and 2017. This increase marked the first increase in both current assets and liabilities, after falling the two years prior. ExxonMobil’s cash ratio is the closest to the industry average but still indicates a possible weakness for the company. In FY 2016, Exxon’s cash ratio was 0.5204, just below to the industry average of 0.70. This could be a signal to shareholders as well as market analysts that the corporation could need additional cash to cover their short-term debt. However, given the history of the company, their dominance and their storied presence in the oil industry, it is highly unlikely that they will default any time soon. A notable strength for ExxonMobil is their cash coverage, or their ability to pay off their debt. In 2014 the ratio reached a high of 179.65 and has since fallen about 70% to 53.19 in 2017. Despite this decrease, ExxonMobil has a cash coverage ratio about 6 times greater than the industry average, a sign that their operating cash flow is effective at paying off any interest expense they may have. Page | 6 ExxonMobil’s debt to equity ratios were again far below the industry average, however in this case it works in their favor, as they have less debt and greater equity than their industry competitors, a positive sign for both shareholders and market analysts. Regarding industry averages, ExxonMobil’s asset management ratios are the closest to industry averages, indicating their ability to manage their assets. ExxonMobil’s best year for inventory turnover was again 2014, when nearly all of their ratios were at their peak, at 14.31x. after declining to a five year low of 8.48x in 2016, Exxon’s inventory turnover has been on the rise, suggesting that in recent years their ability to market and turn over their inventory as it relates to sales in recently. However, as it relates to the market, ExxonMobil is better at turning over their inventory than the industry. Exxon’s days in inventory ratio fell nearly 7 days to average 36.80 days in inventory in 2017, while the industry experienced an increase in the average days in inventory. This shows that ExxonMobil is doing a better job at not only managing their inventory, but at reducing the number of days their products spend in inventory. ExxonMobil experienced their worst year for profit margin in 2016, keeping just 3.91% of their total sales, before increasing in 2017. Although a profit margin of 3.91% seems low, the industry average for 2016 was just 4.4.%, meaning ExxonMobil wasn’t doing too poorly. Without looking more closely, it would seem that either Exxon’s net income was low or their sales were high. In looking at the data, the company’s net income more than doubled between 2016 and 2017 with sales staying relatively steady. Additionally, between 2016 and 2017, the industry as a whole saw profit margins (along with many other profitability ratios) more than double, with ExxonMobil experiencing an 8.31% Page | 7 profit margin compared to the industry’s 9.9%. This could be considered a weakness of the company when compared to other large market companies that have much higher profit margins. Exxon’s ROE is the only profitability measure that was greater than industry averages, even at their lowest at 4.78% in 2016, and reached 10.78% in 2017 while the industry only averaged around 6.2%. This increase shows the company’s shareholders, along with the market, that ExxonMobil is effectively using their assets to generate profits. Internal & Sustainable Growth Rate Growth Rates 2017 2018 Payout Ratio 0.659614 0.662092 Retention Ratio (1-PR) 0.340386 0.337908 Internal Growth Rate 2017 2018 ROA 0.025909 0.038745 IGR 0.008897529 0.013265926 Sustainable Growth Rate 2017 2018 ROE 0.107772 0.109004 SGR 0.038081048 0.0382419 Part 3: Pricing with Comparables Pricing with Earnings Per Share Diluted EPS Excl. Extra Items $4.63 Industry P/E Ratio 16.8 Price $77.78 Page | 8 Pricing with EV/EBITDA EBITDA $ 31,967.00 Industry EV/EBITDA $ 6.20 Enterprise Value (EV) $ 198,195.40 Less: LT Debt $ (23,079.00) Add: Cash/Equivalence $ 3,177.00 Market Cap $ 178,293.40 Market Cap $ 178,293.00 Number of Shares Outstanding 4,329 Price $ 41.19 Part 4: Capital Asset Pricing Model In doing research to determine ExxonMobil’s beta on March 27, 2019, the five sources that I checked (see below) had their beta valued between 0.90-1.04, so I took the average of these values to get a beta of 0.956. This allowed the expected return to be calculated, also seen below. Beta Source Yahoo Finance Reuters Zacks Nasdaq MarketWatch Average Beta Value 1.04 0.9 0.91 1.01 0.92 0.956 Variable Value Risk Free Rate 0.0241 Market Risk Premium 0.086 Beta 0.956 Expected Return 0.106316 Page | 9 Part 5: Weighted Average Cost of Capital Bond Yields 2.475 2.409 2.72 3.58 2.539 2.874 3.662 2.482 Average Yield 2.8426 ExxonMobil’s required rate of return on debt was calculated by visiting FINRA and taking an average of the bond yields that expire in more than a year. WACC Number of Shares 4234.8 Current Price $ 80.40 Equity $ 340,477.92 Equity Debt Total Cost of Equity Cost of Debt Required Rate Required Rate on Debt Tax Rate WACC $ 340,477.92 $ 23,079 $ 363,556.92 0.9365189 0.0634811 0.10236 0.0284 0.21 0.097287652 Page | 10 Part 6: Estimating Firm Value EBIT Taxes Profit After Tax ExxonMobil Free Cash Flows FY 2014 FY 2015 FY 2016 $ 34,082 $ 14,435 $ 4,536 $ 18,015 $ 5,415 $ (406) $ 16,067 $ 9,020 $ 4,942 FY 2017 $ 14,074 $ (1,174) $ 15,248 FY 2018 $ 21,539 $ 9,532 $ 12,007 Depreciation Investment in NWC + Misc ST Assets + Misc ST Liabilities NWC Change in NWC $ 17,297 $ 18,048 $ 18,708 $ 17,893 $ 18,045 Capital Expenditures $ 32,952 $ 26,490 $ 16,163 $ 15,402 $ 19,574 $ 52,910 $ 42,623 $ 41,416 $ 64,633 $ 53,976 $ 47,638 $ (11,723) $ (11,353) $ (6,222) $ 370 $ 5,131 Free Cash Flow $ Average Free Cash Flow $ 8,431 $ 47,134 $ 57,771 $ (10,637) $ (4,415) $ 47,973 $ 57,138 $ (9,165) $ 1,472 208 $ 2,356 $ 22,154 $ 9,006 WACC 0.097287652 Single Stage Model Growth Rate PV of Business LT Debt Value of Equity Number of Shares Price $ $ $ $ 0.0725 364,788.39 19,235 345,553.39 4234.8 81.60 Page | 11 Two Stage Model Growth Rate 1 (5 Years) LT Growth Rate FCF1 FCF2 FCF3 FCF4 FCF5 FCF6 Horizon Value PV of Business Value of Equity Price $ $ $ $ $ $ $ $ $ $ 0.095 0.062 9,231.95 10,108.98 11,069.33 12,120.92 13,272.41 14,095.30 399,439.90 278,805.42 259,570.42 61.29 ValueLine is estimating ExxonMobil’s growth rate to be around 9.5% over the next several years, just below the calculated value for Weighted Average Cost of Capital of 9.729% seen in the previous section. Although I did not come out with a negative share price when using ValueLine’s growth rate, it did leave me with a share price that is greater than 10x the current price, about $950, which led me to experiment with other growth rates. Before I settled on a single stage growth rate, I also worked with the two-stage growth model, using the ValueLine growth rate and a long-term growth rate of 6.2% found on Finbox. This method returned an estimated value per share of $61.29, which is nearly 30% below the current share value. After playing around with the different growth models, I determined that a growth rate of 7.25% was appropriate for ExxonMobil and gave me an estimated value per share of $81.60. I believe this is also appropriate because a company like ExxonMobil, that has been around for decades, is expected to have a life that extends far into the future. In terms of growth rates, I am not aware of any new development in obtaining oil from shale or offshore reserves that would cause a shortterm growth rate that is greater or less than the 7.25% that I estimated. I think the growth rate projected by ValueLine is slightly too optimistic for Exxon and doesn’t match the direction that the industry is moving, away from energy generation that contributes to pollution and climate Page | 12 change, and towards more renewable forms of energy generation like solar, hydropower and geothermal power generation. Part 7: Strengths, Weaknesses, and Recommendation As a company with roots that trace back to Standard Oil in 1870, Exxon and Mobil withstood the test of Standard Oil dissolving into the seven sisters, only for the two of the companies to merge in 1999, coming together once more – now as ExxonMobil. In being a vertically integrated oil and gas company, they facilitate the entire production process, from the research and exploration phase, to refining crude oil and separating it into petroleum and other residual feedstocks, to finally providing gasoline to consumers at the tank. This has allowed them to obtain revenues from not just their oil and gas operations, but from their petrochemical operations and other joint ventures with international oil companies. Tapping into natural gas reserves and extracting crude from the Bakken region in North Dakota, ExxonMobil is poised to be relevant in the oil and gas marketplace for many years to come. Strengths: As we reviewed in section 2 of this analysis, in most of the ratio categories ExxonMobil is falling behind their competitors in the industry in many different measures of company success. However, despite many of these ratios fluctuating over the past 5 years, the one category where ExxonMobil excelled compared to the industry was the asset management ratios, specifically in inventory turnover and days in inventory. Another strength was present in part 3 of this analysis, when Exxon’s stock price was estimated by first using the EPS method, and second using the EV/EBITDA method. In pricing Page | 13 with the company’s earnings per share, a stock price of $77.78 was calculated, which is just below the current stock price which is fluctuating between $80-81 per share in the market. However, when pricing the stock using the EV/EBITDA method, a price of $41.19 was calculated. The market is much more optimistic about ExxonMobil in comparison to the average oil and gas company. With the average beta for ExxonMobil falling between 0.9 and 1, it demonstrates that the stock is viewed as having the same volatilely as the market to being about 10% less volatile than the market. This shows confidence in ExxonMobil’s ability to weather market shocks, which for a large, multinational corporation, is hopefully expected. Additionally, when looking at growth rates for all of the ratios assessed in part 2, all have increased from the year previous, and most notably capital expenditures are down 4.7%, indicating that ExxonMobil isn’t being as aggressive in investing in new projects that involve large expenditures. The largest year on year increase occurred in the company’s EBIT and EBITDA, both rising about 210.3%, demonstrating to the market that earnings are rising. When combined with a decrease in capital expenditures as mentioned above, ExxonMobil is making smart decisions in the current state of the global market. Weaknesses: Many of ExxonMobil’s liquidity and long-term solvency ratios were far below industry averages, which indicates to the market an inability of the company to cover their shortterm debt, raises concern about their measures of operating profit and operating cash flow. Overall, it could express that ExxonMobil has too much debt, and in the event of a market shock they may not be able to pay off this debt. Some external factors that could negatively impact ExxonMobil’s stock price is the actions of OPEC, and if they continue to flood the market with Page | 14 oil, and any environmental damage that their products do on a large scale, much like the Valdez oil spill of 1989 off the coast of Alaska. Recommendation: In terms of whether someone should buy, sell or hold ExxonMobil’s stock, would advise my client to buy stocks in ExxonMobil. In pricing the value of the stocks in part 3, both methods valued the stock price below the current market price, shedding light on the market’s confidence in ExxonMobil. They are doing a great job at turning over inventory and collecting cash from their buyers. Even though some of their liquidity ratios fell far below industry averages, after reaching five-year lows across the board in 2016, the ratios are seeing a rapid increase, I would expect that they improve even more in the years to come. I might not recommend that my client hold this stock for the long term, as consumers continue to be more concerned with the effects of greenhouse gases and emissions on the environment and the earth as a whole. Page | 15
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Explanation & Answer

View attached explanation and answer. Let me know if you have any questions.Here you go buddy! for the word doc i inserted them in simple words so that you are able to put them in your report as well as the financial tables in excel to make it easy for you to copy and paste. PLEASE DON'T FORGET TO GIVE ME A NICE REVIEW AND CLEAR THE PAYMENT!

Apple Inc.
FCFF growth rate (g) implied by PRAT model
Average

Selected Financial Data (US$ in millions)
Interest expense
Net income
Effective income tax rate (EITR)
Interest expense, after tax
Add: Dividends and dividend equivalents declared
Interest expense (after tax) and dividends
EBIT(1 – EITR)
Commercial paper
Current portion of term debt
Non-current portion of term debt
Shareholders’ equity
Total capital

Financial Ratios
Retention rate (RR)
Return on invested capital (ROIC)

Averages
RR
ROIC

0.72
27.03%

FCFF growth rate (g)

19.42%

Apple Inc.
FCFF growth rate (g) forecast
Year
1
2
3
4
5 and thereafter

Value
g(1)
g(2)
g(3)
g(4)
g(5)

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5
Calculations
g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 19.42% + (10.55% – 19.42%) × (2 – 1) ÷ (5 – 1)
= 17.20%
g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 19.42% + (10.55% – 19.42%) × (3 – 1) ÷ (5 – 1)
= 14.99%
g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 19.42% + (10.55% – 19.42%) × (4 – 1) ÷ (5 – 1)
= 12.77%

Sep 26, 2020

Sep 28, 2019

Sep 29, 2018

Sep 30, 2017

Sep 24, 2016

2,873
57,411

3,576
55,256

3,240
59,531

2,323
48,351

1,456
45,687

14.40%

15.90%

18.30%

24.60%

25.60%

2,459
14,087
16,546

3,007
14,129
17,136

2,647
13,735
16,382

1,752
12...


Anonymous
Excellent resource! Really helped me get the gist of things.

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