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FINA 3000 Lecture Notes - Lecture 6: Financial Statement, Market Capitalization

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whitemosquito239
16 Dec 2016
School
University of Georgia
Department
Finance
Course
FINA 3000
Professor
pope

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Document Summary

Definition: market capitalization = market cap = value of company"s equity = # of shares outstanding x current market price per share. Example: global has a book value of shareholder equity of . 2 million. Global currently has 3. 6 million shares priced at . 00. Market cap = 3. 6 million x = million. Compare market cap vs. shareholder equity (greater the difference, the greater the growth potential) Market cap < book value = bankruptcy possible. Firm value = each investors owns a piece of the firm (almost like a pie) Roa: return on assets = net income/total assets. Roe: return on common equity = net income / shareholder equity. Better measure would be change in the stock price (nintendo goes up . 3%) Valuation ratios: how does the market value the firm relative to our accounting or book values? measure of market value / 3 from financial statements book value .

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Related Questions

Fill in the remaining boxes and write short response toquestion.

Company Name McDonald's Wendy's YUM! Industry
Average
Market Price of Common Stock (Stock Price) $35.0 $31.0 $45.0 $37.0
Revenue (Sales) $22,151.0 $3,550.0 $8,380.0 $11,360.3
Cost of Goods Sold $7,384.1 $2,299.6 $3,940.0 $4,541.2
Gross Profit $14,766.9 $1,250.4 $4,440.0 $6,819.1
SG&A Expense $5,776.0 $261.1 $3,005.0 $3,014.0
Depreciation + amortization $1,148.2 $167.8 $401.0 $572.3
Operating Income (EBIT) Earnings before interest and taxes $7,842.7 $821.5 $1,034.0 $3,232.7
Interest Expense $467.1 $48.5 $164.5 $226.7
Net Profits After Tax $1,675.0 $236.0 $617.0 $842.7
3-5 Year Growth Rate In Earnings 15.00 8.00 7.00 10.00
Cash $492.8 $171.2 $192.0 $285.3
Accounts Receivables $734.5 $124.0 $169.0 $342.5
Inventory $129.4 $54.4 $67.0 $83.6
Total Current Assets $6,500.0 $1,235.0 $1,485.0 $3,073.3
Total Assets $28,524.0 $3,164.0 $6,500.0 $12,729.3
Short Term Debt $388.0 $50.9 $10.0 $149.6
Total Current Liabilities $2,485.8 $528.5 $1,461.0 $1,491.8
Long Term Debt $9,342.5 $692.6 $2,056.0 $4,030.4
Total Liabilities (Total Debt) $11,828.3 $1,221.1 $3,517.0 $5,522.1
Stockholders Equity $16,695.7 $1,942.9 $2,983.0 $7,207.2
Annual Dividends paid to common stock $578 $54.0 $125 $252
Preferred Dividends $0.0 $0.0 $0.0 $0.0
# of Common Shares Outstanding 1,154.0 114.7 292.0 520.2
Financial Ratio's McDonald's Wendy's YUM! Average
Liquidity
Current Ratio 2.61 2.34 1.02 1.99
Quick Ratio 2.56 2.23 0.97 1.92
Asset Activity
Accounts Rec. Turnover
Inventory Turnover
Total Asset Turnover
Debt
Total Debt to Equity
Equity Multiplier
Times Interest Earned
Profitability
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
(ROA) Return On Assets
(ROE) Return On Equity
Market Value
EPS
P/E
PEG Ratio
Dividends Per Share
Dividend Payout Ratio
Book Value Per Share
Price to Book Value
Market Capitalization
Cash Per Share
Revenue Per Share

Based on the Financial Ratio's, which company do you fell is thebest investment?

(enter answer in this textbox) (must be 100 words or more)

8) The common stock of Seabreeze Inc. has historically traded at between 18-20 times earnings. The company just initiated a cash dividend equal 10% of net earnings. What do you expect will happen to the PE ratio?

9) Sharmon Inc. has 1 million shares of common stock outstanding at 12/31/15. Book value per share is $4.00 and the closing market price was $16.00 per share. The company has total liabilities of $8 million, including $3 million of debt and total cash and marketable securities of $500,000.

a) Calculate total assets

b) Calculate enterprise value

10) Recurring NICO = $1.25 per share, ROE was 15% and the company paid a dividend of $0.25. Calculate the sustainable growth rate.

11) Recurring NICO = $2.50 per share. You expect earnings to grow by between 10% to 14% per year for the foreseeable future. Calculate estimated earnings per share for future years 1 and 2.

12) Using your answers to question 11, assuming that the PE ratio really does gravitate towards the growth rate, forecast the stock price for future years 1 and 2.

13) Using the year 2 stock price range identified in question 12, calculate the range of expected return on investment if the stock is currently priced at:

a) $25.00 per share (10 times EPS)

b) $30.00 per share (12 times EPS)

c) $35.00 per share (14 times EPS)

14) A privately held company generates EBITDA of $1.2 million per year. Businesses of this type normally sell for between 4-6 times EBITDA. The Company currently has book value of $1 million and debt of $3 million. The minimal amount of cash held by the business is needed for working capital.

a) Calculate the enterprise value range for the company.

b) Calculate the market value of equity range for the company.

c) Assume that we bought the business for $6 million (5 times EBITDA) by borrowing $5 million and putting in equity of $1 million. Our management team managed to increase EBITDA to $2.0 million by year 3 and by the end of year 3 we had paid down $2.5 million of the debt. Assuming that at the end of year 3 we sell the business at 5 times EBITDA. Calculate the MVE and our return (CAGR) on our $1 million investment.

d) If, because EBITDA is now growing, we can get 6 times EBITDA for the business recalculate MVE at the end of year 3 and our return (CAGR) on our $1 million investment. (Welcome to the wonderful world of private equity).

Company Name McDonald's Wendy's YUM! Industry
Average
Market Price of Common Stock (Stock Price) $35.0 $31.0 $45.0 $37.0
Revenue (Sales) $22,151.0 $3,550.0 $8,380.0 $11,360.3
Cost of Goods Sold $7,384.1 $2,299.6 $3,940.0 $4,541.2
Gross Profit $14,766.9 $1,250.4 $4,440.0 $6,819.1
SG&A Expense $5,776.0 $261.1 $3,005.0 $3,014.0
Depreciation + amortization $1,148.2 $167.8 $401.0 $572.3
Operating Income (EBIT) Earnings before interest and taxes $7,842.7 $821.5 $1,034.0 $3,232.7
Interest Expense $467.1 $48.5 $164.5 $226.7
Net Profits After Tax $1,675.0 $236.0 $617.0 $842.7
3-5 Year Growth Rate In Earnings 15.00 8.00 7.00 10.00
Cash $492.8 $171.2 $192.0 $285.3
Accounts Receivables $734.5 $124.0 $169.0 $342.5
Inventory $129.4 $54.4 $67.0 $83.6
Total Current Assets $6,500.0 $1,235.0 $1,485.0 $3,073.3
Total Assets $28,524.0 $3,164.0 $6,500.0 $12,729.3
Short Term Debt $388.0 $50.9 $10.0 $149.6
Total Current Liabilities $2,485.8 $528.5 $1,461.0 $1,491.8
Long Term Debt $9,342.5 $692.6 $2,056.0 $4,030.4
Total Liabilities (Total Debt) $11,828.3 $1,221.1 $3,517.0 $5,522.1
Stockholders Equity $16,695.7 $1,942.9 $2,983.0 $7,207.2
Annual Dividends paid to common stock $578 $54.0 $125 $252
Preferred Dividends $0.0 $0.0 $0.0 $0.0
# of Common Shares Outstanding 1,154.0 114.7 292.0 520.2
Financial Ratio's McDonald's Wendy's YUM! Average
Liquidity
Current Ratio 2.61 2.34 1.02 1.99
Quick Ratio 2.56 2.23 0.97 1.92
Asset Activity
Accounts Rec. Turnover 30.16 28.63 49.59 33.17
Inventory Turnover 57.06 42.27 58.81 54.32
Total Asset Turnover 0.78 1.21 1.29 0.89
Debt
Total Debt to Equity 0.71 0.63 1.18 0.77
Equity Multiplier 1.71 1.63 2.18 1.77
Times Interest Earned 16.79 16.94 6.29 14.26
Profitability
Gross Profit Margin 67% 35% 53% 60%
Operating Profit Margin 35.00% 23.00% 12.00% 28.00%
Net Profit Margin 8.00% 7.00% 7.00% 7.00%
(ROA) Return On Assets 6% 7% 9% 7%
(ROE) Return On Equity 10% 12% 21% 12%
Market Value
EPS $1.45 $2.06 $2.11 $1.62
P/E 24.14 15.05 21.33 22.84
PEG Ratio 1.61 1.88 3.05 2.28
Dividends Per Share 0.50 0.47 0.43 0.48
Dividend Payout Ratio 34% 23% 20% 30%
Book Value Per Share $14.47 $16.94 $10.22

$13.85
Price to Book Value ? ? ?
Market Capitalization ? ? ? ?
Cash Per Share $0.43 $1.49 $0.66 $0.55
Revenue Per Share $19.20 $30.95 $28.70 $21.84

Based on the Financial Ratio's, which company do youfeel is the best investment?

(enter answer in this textbox) (must be 100 words ormore)