Finish the part 3 and 4 combain with part 1 &2. Separate the part 3 and part 4. The Part 4 needs 9 pages. Part 3 needs about 1000 words ( 3 pages).
Michelle_Michy
20200802192926part_21.docxRunning head: VALUATION OF PORTFOLIO AND COMPANIES 1
VALUATION OF PORTFOLIO AND COMPANIES 2
Valuation of Portfolio and Companies
Valuation of Portfolio and Companies
Valuation
The dividend growth model (DDM) calculates the value of any business. It takes into account the dividends per share (DPS), rate of return, and the growth rate. One finds the growth rate by computing the difference between the dividends paid in the years 2018 and 2019. Using a rate of return of 8% gives various stock values. AT&T had an intrinsic value of 34, Apple Inc. had 122, and Kellogg had 37, Exxon 183, whereas Bristol-Myers had 30 dollars. One notes that AT&T had a market price per share (MPS) of 30.08; Apple had 364, Kellogg 66, Exxon 44, and Bristol 59 dollars. Such results show that only AT&T and Exxon Mobil are undervalued. An investor purchasing these companies is likely to take advantage of capital gains.
|
|
AT&T |
APPLE INC |
KELLOGG |
Exxon Mobil |
Bristol-Myers Squibb |
|
Dividends |
2.04 |
3.08 |
2.28 |
3.48 |
1.64 |
|
Rate |
8% |
8% |
8% |
8% |
8% |
|
Growth |
2.00% |
5.48% |
1.79% |
6.10% |
2.50% |
|
Value |
34 |
122 |
37 |
183 |
30 |
(Apple Inc. (AAPL) Stock Historical Prices & Data, n.d.; AT&T Inc. (T) Stock Historical Prices & Data, n.d.; Exxon Mobil Corporation, n.d., and Kellogg Company, n.d.)
Rate of return of 12%
Changing the rate of return varies the intrinsic values of the shares. One notes that AT&T has a value of 20.4, Apple 47, Kellogg 22, and Exxon Mobil 59 while Bristol has a value of 17 dollars. Such results show that all the stocks are overvalued. A prudent investor would not purchase any of the shares from these companies.
|
|
AT&T |
APPLE INC |
KELLOGG |
Exxon Mobil |
Bristol-Myers Squibb |
|
Dividends |
2.04 |
3.08 |
2.28 |
3.48 |
1.64 |
|
Rate |
12% |
12% |
12% |
12% |
12% |
|
Growth |
2.00% |
5.48% |
1.79% |
6.10% |
2.50% |
|
Value |
20.4 |
47 |
22 |
59 |
17 |
Market Price per Share
|
|
AT&T |
APPLE INC |
KELLOGG |
Exxon Mobil |
Bristol-Myers Squibb |
|
MPS |
30.08 |
364 |
66 |
44 |
59 |
Capital Asset Pricing Model (CAPM)
CAPM is a technique used to find the required rate of return. It takes into account the risk-free rate, the beta value, the market rate, and the risk premium (Capital Asset Pricing Model, 2015). Rate of return is obtained as the sum of the risk-free rate and the product of beta and the risk premiums.
|
CAPM Returns |
|
|
|
|
|
|
|
COMPANY |
WEIGHT |
REPORTED BETA |
PORTFOLIO BETA |
Market return |
Risk-free rate |
Rate of return |
|
AT&T |
0.40 |
0.67 |
0.27 |
8% |
0.66% |
2.63% |
|
Bristol-Myers Squibb |
0.20 |
0.72 |
0.14 |
8% |
0.66% |
1.72% |
|
Apple, Inc. |
0.07 |
1.17 |
0.08 |
8% |
0.66% |
1.23% |
|
Exxon Mobil Corp. |
0.13 |
1.36 |
0.18 |
8% |
0.66% |
1.99% |
|
Kellogg Co. |
0.20 |
0.59 |
0.12 |
8% |
0.66% |
1.53% |
|
Total Portfolio Beta |
|
|
0.79 |
8% |
0.66% |
6.45% |
APPLE INC
Turnover ratios measure the way a company uses its assets to generate sales. The inventory turnover, the days of inventory, account receivable turnover, and the days of receivables fall in this category. One notes that Apple Inc. had an inventory turnover of 41.39 in 2018 and 39.40 in 2019. Such answers result in inventory being sold in nine days. It also had an account receivable turnover of 11.45 in 2018 and 11.35 in 2019, whereas days of receivables were 31 in 2018 and 32 in 2019. Liquidity ratios evaluate the ability of a business to meet its short term obligations. Apple Inc. had a current ratio of 1.13 in 2018 and 1.54 in 2019. It also had a quick ratio of 1.10 in 2018 and 1.50 in 2019. These results show that the business is quite liquid and can pay its current liability.
|
Inventory Turnover |
2019 |
2018 |
Current ratio |
2019 |
2018 |
|
COGS |
161,782 |
163,756 |
Current assets |
162,819 |
131,339 |
|
Inventory |
4,106 |
3,956 |
Current liability |
105,718 |
115,929 |
|
Inventory Turnover |
39.40 |
41.39 |
Ratio |
1.54 |
1.13 |
|
Days of inventory |
|
|
Quick ratio |
|
|
|
Days |
360 |
360 |
Current assets |
158,713 |
127,383 |
|
Inventory turnover |
39.40136 |
41.39434 |
Current liability |
105,718 |
115,929 |
|
Days of inventory |
9 |
9 |
Ratio |
1.50 |
1.10 |
|
Accounts receivable Turnover |
2019 |
2018 |
|
|
|
|
Sales |
260,174 |
265,595 |
|
|
|
|
Account receivable |
22,926 |
23,186 |
|
|
|
|
Turnover |
11.35 |
11.45 |
|
|
|
|
Days of receivables |
|
|
|
|
|
|
Days |
360 |
360 |
|
|
|
|
receivable turnover |
11.35 |
11.45 |
|
|
|
|
Days of receivables |
32 |
31 |
|
|
|
(SEC Filings, n.d.).
Leverage and profitability ratios
Leverage gauges the level of borrowings in a business. They include both the debt to equity and debt to assets ratio. Apple Inc. had a debt to equity rate of 0.96 in 2018 and 1.13 in 2019. It also had a debt to assets ratio of 0.28 and .30 in the same period. Such results show that the business is keen on taking on more borrowings. Such a move makes the company quite risky. Besides, one may evaluate the profitability ratios. The firm had a return on equity (ROE) of 0.56 in 2018 and 0.61 in 2019. It also had a net margin of 22% and 21% in the same period. Such results show that the company is quite profitable.
|
Debt to equity |
|
|
Return on equity |
2019 |
2018 |
|
Debt |
102,067 |
102,519 |
Net income |
55,256 |
59,531 |
|
Equity |
90,488 |
107,147 |
Equity |
90,488 |
107,147 |
|
Debt to equity ratio |
1.13 |
0.96 |
ROE |
0.61 |
0.56 |
|
Debt to total assets |
|
|
Net profit margin |
|
|
|
Debt |
102,067 |
102519 |
Net profit |
55,256 |
59531 |
|
Total assets |
338,516 |
365,725 |
Sales |
260,174 |
265,595 |
|
Ratio |
0.30 |
0.28 |
Ratio |
0.21 |
0.22 |
(SEC Filings, n.d.).
AT&T
Both the turnover and current ratios should be evaluated. One notes that AT&T had an inventory turnover of 2.63 in 2018 and2.71 in 2019. Such answers result in inventory being sold in 137 and 133 days in 2018 and 2019, respectively. It also had an account receivable turnover of 6.45 in 2018 and 8.00 in 2019, and days of receivables were 56 in 2018 and 45 in 2019. Liquidity ratios evaluate the ability of a business to meet its short term obligations. Apple Inc. had a current ratio of 0.80 in 2018 and 0.79 in 2019. It also had a quick ratio of 0.52 in 2018 and 0.53 in 2019. AT&T is quite illiquid and may have difficulties in meeting its short term obligations.
|
Inventory Turnover |
2019 |
2018 |
Current ratio |
2019 |
2018 |
|
COGS |
49,785 |
46,513 |
Current assets |
54,761 |
51,427 |
|
Inventory |
18,364 |
17,704 |
Current liability |
68,911 |
64,420 |
|
Inventory Turnover |
2.71 |
2.63 |
Ratio |
0.79 |
0.80 |
|
Days of inventory |
|
|
Quick ratio |
|
|
|
Days |
360 |
360 |
Current assets |
36,397 |
33,723 |
|
Inventory turnover |
2.711011 |
2.627259 |
Current liability |
68,911 |
64,420 |
|
Days of inventory |
133 |
137 |
Ratio |
0.53 |
0.52 |
|
Accounts receivable Turnover |
2019 |
2018 |
|
|
|
|
Sales |
181,193 |
170,756 |
|
|
|
|
Account receivable |
22,636 |
26,472 |
|
|
|
|
Turnover |
8.00 |
6.45 |
|
|
|
|
Days of receivable |
|
|
|
|
|
|
Days |
360 |
360 |
|
|
|
|
Inventory turnover |
8.00 |
6.45 |
|
|
|
|
Days of receivable |
45 |
56 |
|
|
|
(SEC Filings, n.d.).
Leverage and liquidity
AT&T shareholders would be keen on establishing the levels of borrowed funds and the returns generated by a business. The company had a debt to equity of 0.05 in 2018 and 0.06 in 2019. It also had a debt to total assets of 0.02 in both years. Besides, it had an ROE of 10% in 2018 and 7% in 2019. It had a net margin of 11% and 8% in both years. One notes that the firm has maintained deficient debt levels, whereas the profits have been on a downward trend.
|
Debt to equity |
2019 |
2018 |
Return on equity |
2019 |
2018 |
|
Debt |
11,838 |
10,255 |
Net income |
13,900 |
19,370 |
|
Equity |
201,934 |
193,884 |
Equity |
201,934 |
193,884 |
|
Debt to equity ratio |
0.06 |
0.05 |
ROE |
0.07 |
0.10 |
|
Debt to total assets |
|
|
Net profit margin |
|
|
|
Debt |
11,838 |
10255 |
Net profit |
13,900 |
19,370 |
|
Total assets |
551,669 |
531,864 |
Sales |
181,193 |
170,756 |
|
Ratio |
0.02 |
0.02 |
Ratio |
0.08 |
0.11 |
(SEC Filings, n.d.).
EXXON
Exxon had an inventory turnover of 10.17 in 2018 and 9.75 in 2019. It had sold its inventory in 35 days and 37 in the same period. One notes that the receivable turnover was 11.75 and 9.82 in the same period. It collected its credit sales in 31 days in 2018 and 37 in 2019. Liquidity rates appear attractive to any investor. Exxon had a current ratio of 0.84 in 2018 and 0.78 in 2019. It also had a quick ratio of 0.51 in 2018 and 0.49 in 2019. Such results in liquidity rates below a value of one and indicates that the business may have hard times paying its suppliers and other short term liabilities.
|
Inventory Turnover |
2019 |
2018 |
Current ratio |
2019 |
2018 |
|
COGS |
180,627 |
192,854 |
Current assets |
50,052 |
47,973 |
|
Inventory |
18,528 |
18,958 |
Current liability |
63,989 |
57,138 |
|
Inventory Turnover |
9.75 |
10.17 |
Ratio |
0.78 |
0.84 |
|
Days of inventory |
|
|
Quick ratio |
|
|
|
Days |
360 |
360 |
Current assets |
31,524 |
29,015 |
|
Inventory turnover |
9.748867 |
10.1727 |
Current liability |
63,989 |
57,138 |
|
Days of inventory |
37 |
35 |
Ratio |
0.49 |
0.51 |
|
Accounts receivable Turnover |
2019 |
2018 |
|
|
|
|
Sales |
264,938 |
290,212 |
|
|
|
|
Account receivable |
26,966 |
24,701 |
|
|
|
|
Turnover |
9.82 |
11.75 |
|
|
|
|
Days of receivable |
|
|
|
|
|
|
Days |
360 |
360 |
|
|
|
|
Inventory turnover |
9.82 |
11.75 |
|
|
|
|
Days of inventory |
37 |
31 |
|
|
|
(SEC Filings, n.d.).
Debt and profitability
Exxon had a debt to assets of 0.11 in 2018 and 0.13 in 2019. It also had a dent to equity of 0.19 and 0.24 in the same period. These results show business with a relatively low amount of financial obligations. Such companies bear minimal interest costs and expenses. Besides, it is vital to gauge the % of the profitability of the firm. One notes that Exxon had an ROE of 10% in 2018 and 7% in 2019. It also had a net profit of 7% and 5% in the same period.
|
Debt to equity |
2019 |
2018 |
Return on equity |
2019 |
2018 |
|
Debt |
46,920 |
37,796 |
Net income |
14,340 |
20,840 |
|
Equity |
198,938 |
198,528 |
Equity |
198,938 |
198,528 |
|
Debt to equity ratio |
0.24 |
0.19 |
ROE |
0.07 |
0.10 |
|
Debt to total assets |
|
|
Net profit margin |
|
|
|
Debt |
46,920 |
37,796 |
Net profit |
14,340 |
20,840 |
|
Total assets |
362,597 |
346,196 |
Sales |
264,938 |
290,212 |
|
Ratio |
0.13 |
0.11 |
Ratio |
0.05 |
0.07 |
(SEC Filings, n.d.).
KELLOG
Efficiency ratios gauge the manner a company utilizes its assets. Kellogg had an inventory turnover of 6.63 and 7.50 in 2018 and 2019, respectively. One notes that the rate has improved, showing that the business is selling its stock at a faster pace. It also had accounts receivable turnover of 9.85 in 2018 and 8.62 in 2019. Besides, the current and quick ratio shows the performance of any business. One notes that the company had a current ratio of 0.70 in 2018 and 0.72 in 2019. It also had a quick ratio of 0.40 in 2018 and 0.46 in 2019. Such results show that the business will have a hard time meeting its short term obligations. An investor may avoid investing in such a company.
|
Inventory Turnover |
2019 |
2018 |
Current ratio |
2019 |
2018 |
|
COGS |
9,197 |
8,821 |
Current assets |
3,431 |
3,157 |
|
Inventory |
1,226 |
1,330 |
Current liability |
4,778 |
4,529 |
|
Inventory Turnover |
7.50 |
6.63 |
Ratio |
0.72 |
0.70 |
|
Days of inventory |
|
|
Quick ratio |
|
|
|
Days |
360 |
360 |
Current assets |
2,205 |
1,827 |
|
Inventory turnover |
7.501631 |
6.632331 |
Current liability |
4,778 |
4,529 |
|
Days of inventory |
48 |
54 |
Ratio |
0.46 |
0.40 |
|
Accounts receivable Turnover |
2019 |
2018 |
|
|
|
|
Sales |
13,578 |
13,547 |
|
|
|
|
Account receivable |
1,576 |
1,375 |
|
|
|
|
Turnover |
8.62 |
9.85 |
|
|
|
|
Days of inventory |
|
|
|
|
|
|
Days |
360 |
360 |
|
|
|
|
Inventory turnover |
8.62 |
9.85 |
|
|
|
|
Days of inventory |
42 |
37 |
|
|
|
(SEC Filings, n.d.).
Debt and profitability ratios
Kellog had an ROE of 42% and 29% in 2018 and 2019, respectively. It also had a net margin of 10% in 2018 and 7% in 2019. One notes that there was a decline in the profits from one year to the other. As a result, such stock may not appear attractive to any investor. Besides, it has a debt to equity of 2.65 in 2018 and 2.20 in 2019. It also had a debt to assets of 0.47 in 2018 and 0.42 in 2019. An investor notes that the company has maintained a relatively higher level of debt. This situation makes the firm quite risky.
|
Debt to equity |
2019 |
2018 |
Return on equity |
2019 |
2018 |
|
Debt |
7,302 |
8,383 |
Net income |
960 |
1,336 |
|
Equity |
3,314 |
3,159 |
Equity |
3,314 |
3,159 |
|
Debt to equity ratio |
2.20 |
2.65 |
ROE |
29% |
42% |
|
Debt to total assets |
|
|
Net profit margin |
|
|
|
Debt |
7,302 |
8,383 |
Net profit |
960 |
1,336 |
|
Total assets |
17,564 |
17,780 |
Sales |
13,578 |
13,547 |
|
Ratio |
0.42 |
0.47 |
Ratio |
7% |
10% |
(SEC Filings, n.d.).
BRISTOL
Bristol had an inventory turnover of 1.19 in 2018 and 1.88 in 2019. As a result, it had days of inventory of 302 and 191 in the same period. Such results show that the company is replenishing stock at a faster rate. It also had an account receivable turnover of 3.93 in 2018 and 3.40 in 2019. Its credit sales were outstanding for 92 days in 2018 and 106 in 2019. Besides, one should evaluate the liquidity ratios. Bristol had a current ratio of 1.66 in 2018 and 1.60 in 2019. It also had a quick ratio of 1.15 in 2018 and 1.37 in 2019. This performance indicates that the firm can meet its short term obligations when they fall due.
|
Inventory Turnover |
2019 |
2018 |
Current ratio |
2019 |
2018 |
|
COGS |
8,078 |
6,467 |
Current assets |
29,354 |
17,716 |
|
Inventory |
4,293 |
5,427 |
Current liability |
18,304 |
10,654 |
|
Inventory Turnover |
1.88 |
1.19 |
Ratio |
1.60 |
1.66 |
|
Days of inventory |
|
|
Quick ratio |
|
|
|
Days |
360 |
360 |
Current assets |
25,061 |
12,289 |
|
Inventory turnover |
1.881668 |
1.191634 |
Current liability |
18,304 |
10,654 |
|
Days of inventory |
191 |
302 |
Ratio |
1.37 |
1.15 |
|
Accounts receivable Turnover |
2019 |
2019 |
|
|
|
|
Sales |
26,145 |
22,561 |
|
|
|
|
Account receivable |
7,685 |
5,747 |
|
|
|
|
Turnover |
3.40 |
3.93 |
|
|
|
|
Days of inventory |
|
|
|
|
|
|
Days |
360 |
360 |
|
|
|
|
Inventory turnover |
3.40 |
3.93 |
|
|
|
|
Days of inventory |
106 |
92 |
|
|
|
Leverage and profitability ratios
Bristol had a debt to equity ratio of 0.52 in 2018 and 0.9 in 2019. It also had a debt to assets of 0.21 and 0.36 in the same period. One notes that there was an increase in its leveraged position. It is essential to make sure the borrowings are kept at a sustainable level. Besides, it had an ROE of 35% in 2018 and 7% in 2019 and a net margin of 22% and 13% in the same period.
|
Debt to equity |
2019 |
2018 |
Return on equity |
2019 |
2018 |
|
Debt |
46,733 |
7,349 |
Net income |
3,439 |
4,920 |
|
Equity |
51,698 |
14,127 |
Equity |
51,698 |
14,127 |
|
Debt to equity ratio |
90% |
52% |
ROE |
7% |
35% |
|
Debt to total assets |
|
|
Net profit margin |
|
|
|
Debt |
46,733 |
7,349 |
Net profit |
3,439 |
4,920 |
|
Total assets |
129,944 |
34,986 |
Sales |
26,145 |
22,561 |
|
Ratio |
36% |
21% |
Ratio |
13% |
22% |
(SEC Filings, n.d.).
References
Apple Inc. (AAPL) Stock Historical Prices & Data - Yahoo Finance. (n.d.). Retrieved July 4, 2020, from finance.yahoo.com website: https://finance.yahoo.com/quote/AAPL/history?period1=1435968000&period2=1593820800&interval=div%7Csplit&filter=div&frequency=1d
AT&T Inc. (T) Stock Historical Prices & Data - Yahoo Finance. (n.d.). Retrieved from finance.yahoo.com website: https://finance.yahoo.com/quote/T/history?period1=1435968000&period2=1593820800&interval=div%7Csplit&filter=div&frequency=1d
BMY SEC Filings - Bristol Myers Squibb. (n.d.). Retrieved July 4, 2020, from www.bms.com website: https://www.bms.com/investors/financial-reporting/sec-filings.html
Exxon Mobil Corporation (XOM) Stock Historical Prices & Data - Yahoo Finance. (n.d.). Retrieved July 4, 2020, from finance.yahoo.com website: https://finance.yahoo.com/quote/XOM/history?period1=1435968000&period2=1593820800&interval=div%7Csplit&filter=div&frequency=1d
Kellogg Company (K) Stock Historical Prices & Data - Yahoo Finance. (n.d.). Retrieved July 4, 2020, from finance.yahoo.com website: https://finance.yahoo.com/quote/K/history?period1=1435968000&period2=1593820800&interval=div%7Csplit&filter=div&frequency=1d
SEC Filings | Exxon Mobil Corporation. (n.d.). Retrieved July 4, 2020, from ir.exxonmobil.com website: https://ir.exxonmobil.com/sec-filings
SEC Filings. (n.d.). Retrieved July 4, 2020, from investors.att.com website: https://investors.att.com/financial-reports/sec-filings
SEC Filings - Kellogg Company. (n.d.). Retrieved July 4, 2020, from investor.kelloggs.com website: https://investor.kelloggs.com/financials/sec-filings/default.aspx
What is the CAPM - Capital Asset Pricing Model - Formula, Example. (2015). Retrieved from Corporate Finance Institute website: https://corporatefinanceinstitute.com/resources/knowledge/finance/what-is-capm-formula/
Running
head:
VALUATION
OF
PORTFOLIO
AND
COMPANIES
1
Valuation
of
Portfolio
and
Companies
