Description
Part I
800-1000 words. Choose a public company, and present findings from your financial analysis in a report. Your report must include the following:
- Give a description of the operating profit margin.
- Give a description of the asset turnover.
- Give a description of the equity multiplier.
- Give a description of the return on equity.
- Give a description of the return on assets.
- Calculate the operating profit margin. Explain your answer.
- Calculate the asset turnover. Explain your answer.
- Calculate the equity multiplier. Explain your answer.
- Calculate the return on assets. Explain your answer.
- Calculate the return on equity. Explain your answer.
- What does the DuPont analysis describe about the company chosen?
- Which ratio demonstrates the company’s weakest area? Explain your answer.
Part II
Using the same company from Part I, write a report of another 800–1,000 words that demonstrates your understanding of the cost of capital and risk. Specifically, you are to include the following:
- Give a description of the weighted average cost of capital.
- Give a description of the capital asset pricing model.
- Give a description of the security market line.
- Give a description of the cost of debt.
- Calculate the weighted average cost of capital. Explain your answer.
- Calculate the cost of debt. Explain your answer.
- How would you restructure the firm’s debt? Explain your answer.
EACH BULLET IS ITS OWN DETAILED PARAGRAH. PLEASE BREAKDOWN PART 1 from Part
Explanation & Answer
Attached.
Running head: COST OF CAPITAL AND RISK IN CORPORATE FINANCE
Cost of Capital and Risk in Corporate Finance
Name
Institutional affiliation
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COST OF CAPITAL AND RISK IN CORPORATE FINANCE
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Case study: APPLE INC. COMPANY
Part 1
Operating profit margin
Operating profit margin is the measure of a company’s operating effectiveness and pricing
strategy. The ratio gives an overview of how much a company makes on each dollar of sales
before the taxes and interests (Bull, 2008). Operating profit margin, on the other hand, measures
the proportion that is left of company’s revenue after the deduction of overhead and direct costs
and other indirect costs, for instance, the interest. The profit margin can be used to compare a
company financial performance from one year to another as well as gauge it performance with its
competitors (Bull, 2008).
Calculating the profit margin
Operating margin = operating income / net sales × 100
So, the operating profit margin of Apple Company for the fiscal year that ended September 2016
is
Operating profit margin = 60,024 / 215, 639 × 100
= 27.84%
N.B all numbers in millions except for the ratio
Explanation
With an operating profit margin of 27.84%, Apple Company is earning on average $0.28 for
every dollar of sales before taxes and interest. Based on the above calculation it can be deduced
COST OF CAPITAL AND RISK IN CORPORATE FINANCE
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that Apple Company has an operating profit margin of 27.84% on $215.7 million net sales which
means that the company can satisfy its credit obligations and create value for its shareholders
through generating a stable operating cash flow. The operating profit margin, on the other hand,
is healthy because it illustrates that Apple Company can pay for the fixed costs such as the
interest on debt, hence less financial risk.
Asset turnover
Asset turnover measures how well a company uses its assets to generate revenue or sales. Asset
turn over can be used to determine how efficient a company is at deploying its asset to generate
revenue. With a higher asset turnover ratio, it means that a company is healthy and performing
well financially as the company is generating more revenue on every dollar of asset. Asset turn
over can be used to compare companies in the same industry because it would make more sense,
for instance, Apple company and Samsung
Calculation
Asset turn over = Revenue or sales / total assets
Hence asset turn over for Apple Comp...
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