Description
Using the two stocks , identify the Beta for each one. In your own words, what conclusion can you draw from the stocks’ current and historical beta? If the stock market went up 10% today, what would be the impact on each of your stocks?
Using the 2016 financial statements from your stocks above and the equations from your textbook, prepare the Historical Average and Standard Deviation for each stock
Explanation & Answer
Here is the answer. Thanks
APPLE INC (AAPL)
INCOME STATEMENT
Fiscal year ends in September. USD in millions except per share data.
2012-09
Revenue
Cost of revenue
Gross profit
Operating expenses
Research and development
Sales, General and administrative
Total operating expenses
Operating income
Interest Expense
Other income (expense)
Income before taxes
Provision for income taxes
Net income from continuing operations
Net income
2013-09
156508
87846
68662
170910
106606
64304
3381
10040
13421
55241
4475
10830
15305
48999
136
1292
50155
13118
37037
37037
522
55763
14030
41733
41733
PL)
MENT
182795
112258
70537
233715
140089
93626
215639
131376
84263
191913,40
115635,00
76278,40
Standard
Deviation
31969,16
20681,71
12237,77
6041
11993
18034
52503
384
1364
53483
13973
39510
39510
8067
14329
22396
71230
733
2018
72515
19121
53394
53394
10045
14194
24239
60024
1456
2804
61372
15685
45687
45687
6401,80
12277,20
18679,00
57599,40
677,25
1600,00
58657,60
15185,40
43472,20
43472,20
2693,22
1940,63
4587,38
8619,37
574,02
856,88
8758,49
2388,39
6393,03
6393,03
2014-09
2015-09
2016-09
Average
APPLE INC (AAPL)
BALANCE SHEET
Fiscal year ends in September. USD in millions except per share data.
2012-09
Assets
Current assets
Cash
Cash and cash equivalents
Short-term investments
Total cash
Receivables
Inventories
Deferred income taxes
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Gross property, plant and equipment
Accumulated Depreciation
Net property, plant and equipment
Equity and other investments
Goodwill
Intangible assets
Other long-term assets
Total non-current assets
Total assets
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt
Accounts payable
Taxes payable
Accrued liabilities
Deferred revenues
Other current liabilities
Total current liabilities
Non-current liabilities
Long-term debt
Deferred taxes liabilities
Deferred revenues
Other long-term liabilities
Total non-current liabilities
Total liabilities
Stockholders' equity
Common stock
2013-09
10746
18383
29129
10930
791
2583
14220
57653
14259
26287
40546
13102
1764
3453
14421
73286
21887
-6435
15452
92122
1135
4224
5478
118411
176064
28519
-11922
16597
106215
1577
4179
5146
133714
207000
21175
1535
8387
5953
1492
38542
22367
1200
5217
7435
7439
43658
2648
16664
19312
57854
16960
16489
2625
3719
39793
83451
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity
16422
101289
499
118210
176064
19764
104256
-471
123549
207000
APL)
EET
2014-09
2015-09
13844
11233
25077
17460
2111
4318
19565
68531
21120
20481
41601
16849
2349
5546
23033
89378
39015
-18391
20624
130162
4616
4142
3764
163308
231839
2016-09
20484
46671
67155
15754
2132
Average
Standard
Deviation
21828
106869
16090,60
24611,00
40701,60
14819,00
1829,40
3975,00
18613,40
79143,40
4515,63
13456,12
16421,55
2740,55
617,13
1264,36
4112,49
19249,84
49257
-26786
22471
164065
5116
3893
5556
201101
290479
61245
-34235
27010
170430
5414
3206
8757
214817
321686
39984,60
-19553,80
20430,80
132598,80
3571,60
3928,80
5740,20
166270,20
245413,60
15794,82
11175,22
4662,94
34502,67
2048,53
423,95
1834,54
41620,79
59828,11
6308
30196
1209
7689
9548
8498
63448
10999
35490
11605
37294
25181
8940
22027
8080
80610
79006
9637,33
29304,40
1314,67
13700,20
7991,20
5809,67
61052,80
2899,16
7367,24
190,87
9185,23
1396,01
3776,51
19492,65
28987
20259
3031
4567
56844
120292
53463
24062
3624
9365
90514
171124
75427
26019
2930
10055
114431
193437
43709,25
21707,25
2971,60
8874,00
64178,80
125231,60
26034,71
4221,52
404,89
5182,77
38341,63
57157,34
23313
27416
31251
27326,67
3969,75
87152
1082
111547
231839
92284
-345
119355
290479
96364
634
128249
321686
18093,00
96269,00
279,80
120182,00
245413,60
2363,15
6855,68
665,41
6235,97
59828,11
APPLE INC (AAPL)
CASH FLOW STATEMENT
Fiscal year ends in September. USD in millions except per share data.
2012-09
Cash Flows From Operating Activities
Net income
Depreciation & amortization
Deferred income taxes
Stock based compensation
Accounts receivable
Inventory
Accounts payable
Other working capital
Other non-cash items
Net cash provided by operating activities
Cash Flows From Investing Activities
Investments in property, plant, and equipment
Acquisitions, net
Purchases of investments
Sales/Maturities of investments
Purchases of intangibles
Other investing activities
Net cash used for investing activities
Cash Flows From Financing Activities
Debt issued
Debt repayment
Common stock issued
Common stock repurchased
Dividend paid
Other financing activities
Net cash provided by (used for) financing activities
Net change in cash
Cash at beginning of period
Cash at end of period
2013-09
41733
3277
4405
1740
-5551
-15
4467
800
37037
6757
1141
2253
-2172
-973
2340
7283
50856
53666
-8295
-350
-151232
112805
-1107
-48
-48227
-8165
-496
-148489
124447
-911
-160
-33774
16896
665
-2488
125
-1698
931
9815
10746
530
-22860
-10564
-381
-16379
3513
10746
14259
APL)
TEMENT
2014-09
2015-09
2016-09
Average
Standard
Deviation
39510
7946
2347
2863
-4232
-76
5938
5417
53394
11257
1382
3586
611
-238
5400
5874
45687
10505
4938
4210
1095
217
1791
-2619
43472,20
7948,40
2842,60
2930,40
-2049,80
-217,00
3987,20
3351,00
6393,03
3190,79
1739,70
993,44
2915,69
453,05
1841,77
4130,47
59713
81266
65824
62265,00
12086,41
-9571
-3765
-217128
208111
-242
16
-22579
-11247
-343
-166402
121985
-241
-26
-56274
-12734
-297
-143816
111794
-814
-110
-45977
-10002,40
-1050,20
-165413,40
135828,40
-663,00
-65,60
-41366,20
1967,74
1519,46
30122,14
40785,05
398,99
69,68
13239,84
968,74
-2500
495
-29722
-12150
23394
-20483
-636
21120
20484
17581,00
-2500,00
592,60
-33208,75
-9577,80
10254,80
-18765,00
2133,80
13956,80
16090,60
18266
730
-45000
-11126
-419
-37549
-415
14259
13844
543
-35253
-11561
28555
-17716
7276
13844
21120
100,03
9353,55
4005,75
14467,20
12785,40
3315,09
4440,70
4515,63
PART: ONE
Estimation of the Beta of Apple Incorporation and Cisco Systems Incorporation
Beta of Apple Incorporation
Apple Incorporation is enlisted in the NASDAQ market. Thus, market return of the NASDAQ
composite can be used as the proxy of the market return. The beta of the Apple can estimated by diving
the covariance of the NASDAQ Composite’s return and Apple’s return by the variance of the NASDAQ
Composite’s return. Here, the return of the NASDAQ composite can be undertaken as the market return.
Data of the Apple price, and NASDAQ composite return has been undertaken for the last two years (From
01 May 2015 to 01 May 2017) to estimate the beta of the Apple (Appendix 01).
Covariance of NASDAQ Composite Return, and Apple’s Return, COV (Ri, Rm) = 0.00010199
Variance of the NASDAQ Composite Return, VAR (Rm) = 0.00009933
Beta Coefficient of Apple = COV (Ri, Rm) / VAR (Rm) = (0.00010199 / 0.00009933) = 1.03
Beta of Cisco Systems Incorporation
Cisco System Incorporation is enlisted in the NASDAQ market. Thus, market return of the
NASDAQ composite can be used as the proxy of the market return. The beta of the Cisco System can
estimated by diving the covariance of the NASDAQ Composite’s return and Cisco System’s return by the
variance of the NASDAQ Composite’s return. Here, the return of the NASDAQ composite can be
undertaken as the market return. Data of the Cisco System, and NASDAQ composite return has been
undertaken for the last two years (From 01 May 2015 to 01 May 2017) to estimate the beta of the Cisco
System (Appendix 02).
Covariance of NASDAQ Composite Return, and Cisco’s Return, COV (Ri, Rm) = 0.00008625
Variance of the NASDAQ Composite Return, VAR (Rm) = 0.00009933
Beta Coefficient of Cisco = COV (Ri, Rm) / VAR (Rm) = (0.00008625 / 0.00009933) = 0.87
Historical Beta and Current Beta of the Apple Incorporation and Cisco Systems Incorporation
The historical beta of the Apple Incorporation and Cisco Systems Incorporation are estimated
based on the historical stock data of the last two years are 1.03 and 0.87 respectively. Based on the Yahoo
Finance estimates the current beta of the Apple Incorporation and Cisco Systems Incorporation are 1.44,
and 1.42 respectively. Both current and historical beta of the Apple Incorporation and Cisco Systems
Incorporation are positive and more than one. Positive beta of these stocks implies that stock of the Apple
Incorporation and Cisco Systems Incorporation are cyclical stocks. The return of the stock of the Apple
Incorporation and Cisco Systems Incorporation moves in the same direction in the overall market return.
The more than one value of the stock of Apple Incorporation and Cisco Systems Incorporation implies
that stock of the Apple Incorporation and Cisco Systems Incorporation belong to the aggressive stock
category. For given change in the overall market, the change of the return if the Apple Incorporation and
Cisco Systems Incorporation are higher.
Prediction of the Change in Stock’s Returns
As the stocks of the Apple Incorporation and Cisco Systems Incorporation are aggressive stocks,
for given change in the overall market, the change of the return if the Apple Incorporation and Cisco
Systems Incorporation are higher. As the beta of the Apple Incorporation and Cisco Systems
Incorporation are 1.03 and 0.87 respectively, if the market moves by the 10% up, the stock of the Apple
Incorporation will move up by 10.3%, and the stock of the Cisco Systems Incorporation will move up by
8.7%.
PART: TWO
Mean and Standard Deviation of Apple Incorporation
APPLE INC (AAPL)
INCOME STATEMENT
Fiscal year ends in September. USD in millions except per share data.
Revenue
Cost of revenue
Gross profit
Operating expenses
Research and development
Sales, General and administrative
Total operating expenses
Operating income
Interest Expense
Other income (expense)
Income before taxes
Provision for income taxes
Net income from continuing operations
Net income
2012-09
2013-09
2014-09
2015-09
2016-09
156508
87846
68662
170910
106606
64304
182795
112258
70537
233715
140089
93626
215639
131376
84263
191913.40
115635.00
76278.40
Standard
Deviation
31969.16
20681.71
12237.77
3381
10040
13421
55241
4475
10830
15305
48999
136
1292
50155
13118
37037
37037
6041
11993
18034
52503
384
1364
53483
13973
39510
39510
8067
14329
22396
71230
733
2018
72515
19121
53394
53394
10045
14194
24239
60024
1456
2804
61372
15685
45687
45687
6401.80
12277.20
18679.00
57599.40
677.25
1600.00
58657.60
15185.40
43472.20
43472.20
2693.22
1940.63
4587.38
8619.37
574.02
856.88
8758.49
2388.39
6393.03
6393.03
522
55763
14030
41733
41733
Average
APPLE INC (AAPL)
BALANCE SHEET
Fiscal year ends in September. USD in millions except per share data.
Assets
Current assets
Cash
Cash and cash equivalents
Short-term investments
Total cash
Receivables
Inventories
Deferred income taxes
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Gross property, plant and equipment
Accumulated Depreciation
Net property, plant and equipment
Equity and other investments
Goodwill
Intangible assets
Other long-term assets
Total non-current assets
Total assets
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt
2012-09
2013-09
2014-09
2015-09
2016-09
10746
18383
29129
10930
791
2583
14220
57653
14259
26287
40546
13102
1764
3453
14421
73286
13844
11233
25077
17460
2111
4318
19565
68531
21120
20481
41601
16849
2349
5546
23033
89378
20484
46671
67155
15754
2132
21887
-6435
15452
92122
1135
4224
5478
118411
176064
28519
-11922
16597
106215
1577
4179
5146
133714
207000
39015
-18391
20624
130162
4616
4142
3764
163308
231839
6308
Average
Standard
Deviation
21828
106869
16090.60
24611.00
40701.60
14819.00
1829.40
3975.00
18613.40
79143.40
4515.63
13456.12
16421.55
2740.55
617.13
1264.36
4112.49
19249.84
49257
-26786
22471
164065
5116
3893
5556
201101
290479
61245
-34235
27010
170430
5414
3206
8757
214817
321686
39984.60
-19553.80
20430.80
132598.80
3571.60
3928.80
5740.20
166270.20
245413.60
15794.82
11175.22
4662.94
34502.67
2048.53
423.95
1834.54
41620.79
59828.11
10999
11605
9637.33
2899.16
Accounts payable
Taxes payable
Accrued liabilities
Deferred revenues
Other current liabilities
Total current liabilities
Non-current liabilities
Long-term debt
Deferred taxes liabilities
Deferred revenues
Other long-term liabilities
Total non-current liabilities
Total liabilities
Stockholders' equity
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity
21175
1535
8387
5953
1492
38542
22367
1200
5217
7435
7439
43658
30196
1209
7689
9548
8498
63448
35490
37294
25181
8940
22027
8080
80610
2648
16664
19312
57854
16960
16489
2625
3719
39793
83451
28987
20259
3031
4567
56844
120292
16422
101289
499
118210
176064
19764
104256
-471
123549
207000
79006
29304.40
1314.67
13700.20
7991.20
5809.67
61052.80
7367.24
190.87
9185.23
1396.01
3776.51
19492.65
53463
24062
3624
9365
90514
171124
75427
26019
2930
10055
114431
193437
43709.25
21707.25
2971.60
8874.00
64178.80
125231.60
26034.71
4221.52
404.89
5182.77
38341.63
57157.34
23313
27416
31251
87152
1082
111547
231839
92284
-345
119355
290479
96364
634
128249
321686
27326.67
18093.00
96269.00
279.80
120182.00
245413.60
3969.75
2363.15
6855.68
665.41
6235.97
59828.11
APPLE INC (AAPL)
CASH FLOW STATEMENT
Fiscal year ends in September. USD in millions except per share data.
2012-09 2013-09 2014-09
Cash Flows From Operating Activities
Net income
Depreciation & amortization
Deferred income taxes
Stock based compensation
Accounts receivable
Inventory
Accounts payable
Other working capital
Other non-cash items
Net cash provided by operating activities
Cash Flows From Investing Activities
Investments in property, plant, and equipment
Acquisitions, net
Purchases of investments
Sales/Maturities of investments
Purchases of intangibles
Other investing activities
Net cash used for investing activities
Cash Flows From Financing Activities
Debt issued
Debt repayment
Common stock issued
Common stock repurchased
Dividend paid
Other financing activities
2015-09 2016-09
Average
Standard
Deviation
41733
3277
4405
1740
-5551
-15
4467
800
37037
6757
1141
2253
-2172
-973
2340
7283
39510
7946
2347
2863
-4232
-76
5938
5417
53394
11257
1382
3586
611
-238
5400
5874
45687
10505
4938
4210
1095
217
1791
-2619
43472.20
7948.40
2842.60
2930.40
-2049.80
-217.00
3987.20
3351.00
6393.03
3190.79
1739.70
993.44
2915.69
453.05
1841.77
4130.47
50856
53666
59713
81266
65824
62265.00
12086.41
-11247
-12734
-343
-297
-166402 -143816
121985 111794
-241
-814
-26
-110
-56274
-45977
-10002.40
-1050.20
-165413.40
135828.40
-663.00
-65.60
-41366.20
1967.74
1519.46
30122.14
40785.05
398.99
69.68
13239...