FIN640_Milestone 1

Financial markets

Five year performance of domestic economy

Apple is a global design and sales firm of mobile and media equipment. Understanding the performance of domestic economy, it has been less uniform with considerable fluctuations (Apple Inc, 2017). On the other hand, Caterpillar is a company dealing with mining and construction machines based out of America and it has seen a decline in the income and returns. Edison is a joint company into holdings and a slight increase in the revenue can be seen. Similar to Edison, Northern Trust is also a financial holding company that has seen gradual increase in income. Messi is a chain of retail stores that has seen a decline lately.

Market performance

Apple has minimized its investments and also purchase of intangibles. This has given scope for increase in stock value and share price. It is a sad state with respect to Caterpillar’s performance since the market has rapidly affected the business with trade rates. ED and Northern Trust performed quite similarly and their market performances were carefully decided so that they don’t end in losses. Debts, stocks and other market fluctuations have affected the market performance of Messi.

Impact and current macroeconomic data

It is essential to understand the present macroeconomic data and impacts. ED and Northern Trust have positive impacts in the productivity, interest rate, stock value and exchange rate. Messi, Caterpillar and Apple do not have positive impacts.

Company valuation

Financial items and key ratios

Upon evaluating the financial report of Apple as per 30 Sep 2016, the profit margin has touched 21.19% out of which Apple will gain 21.19% of sales and this should be allotted to the shareholders. This implies that the profit margin is quite high. The debt asset turnover has been set to 0.6 and this is above the industry average of 0.5 (Reuters.com, 2017). Therefore, it could be said that there is high leverage of its assets. Current ratio is also a key ratio of Apple. It is marked as 1.35 and this is shown as a good sign as Apple can efficiently deal with debts at this stage. The efficiency ratio of Apple has seen a gradual rise in efficiency and is at 27.59% which implies strong efficiency. The key ratios have notified the deteriorating health of the firm in the recent annual report.

In the case of Caterpillar, it has recorded low debt/ assets ratio at 0.49 while the industry average is 0.52. The current assets are far lesser at 1.22 when compared to 2.05. Edison has performed well in its financial health ratios. For instance, the equity ratio is 1.11 while industry average is 0.93. The same case applies to cash flow ratio. Similar to Edison, Northern Trust has also achieved a rise in debt equity ratio at 0.92 when industry average is 0.65. The debt asset margin is 0.07 which is 70% and 20% lesser than the industry average. This is a fair ratio. Messi has recorded low ratios when compared to industry average.

Intrinsic value of assets

The net turnover of assets belonging to Apple Inc was 0.7 times. This also implies that the turnover is less for a $0.7 USD invested (Apple Inc, 2017). This is below average and cannot be treated as an effective option. Looking into the financial health of the assets, the accounts received have been low and the inventory efficiency is also low. The total assets possessed by Apple Inc have come to as low as 33.22% as on Sep 2016 (Reuters.com, 2017). This is again instructing a poor financial health of the firm. The net current liabilities have been under control. The turnover from fixed asset is 8.75 and this is also low when compared with the market ratios. The analysis shows that the intrinsic value of such assets is low. The fixed asset values of Northern Trust and Edison are lesser and have experienced fluctuations. Caterpillar has seen a decrease in the asset value and cash flow has also deteriorated. The asset value of ED is moderate and Northern Trust has an increase in possession of assets. Fluctuations are high in Messi similar to Caterpillar.

Stakeholders

5 key stakeholders

There are 5 major stakeholders associated with the firm and they directly influence the development of firm. These are given below.

All the major stakeholders are keen about the financial growth and performance of the firm that can add benefits to them (Apple Inc, 2017). Since Apple is a technology company that has gained global sales and recognition, these stakeholders play critical roles in the operations. These stakeholders apply for other companies too. The financial holding companies like Northern Trust and Edison have customers as stakeholders and other companies that act as investors. Companies like Messi and Caterpillar have third party companies as their investors and they look forward for better cash equivalents.

Common stockholders

The objective of common stockholders of the firms is to maximize the return on investments from the firm. Apple has numerous stockholders and the financial performance has a direct impact on the stock value and this demands the firm to focus on the financial development.

To determine the necessary rate of return, the following formula is applied:

ri= rf + βi * (Rmkt - rf )

Applying the values as in table to the formula above, the rate of return is 2% + 1.28*6% = 9.68%

References

Apple Inc (2017). Morningstar. Retrieved 18 October, 2017 fromhttp://www.morningstar.com/stocks/XBUE/AAPL/quote.html

Reuters.com. (2017). Company Profile: Apple Inc. (M.N). Retrieved 18 October, 2017, from http://www.reuters.com/finance/stocks/companyProfile?symbol=M.N