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Running Head: FINANCIAL ANALYSIS 1

Etan Gipson

Dr Tiffanie Deloach

Bus/401

June 17, 2024

FINANCIAL ANALYSIS 2

Part 1: Dividend Analysis

MO has distributed quarterly dividends from 2014 to 2021. MO grew at an average rate

of 8.53% during the course of eight years, rising to 8.64% after five years and falling to 5.52%

after three. For the previous ten years, MO's yearly dividends have increased each year. The pace

of growth varied annually between 2014 and 2021. MO's 2014 dividend growth rate was 8.70%;

in 2015, it was 8%. MO raised dividend growth in 2016 from 8.33% to 8.55%, and in 2018 it

reached 18.11%. After that, MO had a decline to 9.33% in 2019 dropping again in 2020 to 3.66%

and 3.53% in 2021.

I have chosen 8.5% as the high-end dividend growth rate after examining MO's dividend

growth rate data, the eight-year average, and the strong growth rate in 2018. The three-year

average and the growth rates in 2018 and 2019 indicate that MO has the lowest dividend growth

rate history, at 4%. Over the past eight years, MO's growth rate trend has climbed, fallen and

then increased again.

These growth rate projections are supported by MO's financial success in 2018 as well as

oscillating sales and net income over the last three years. According to Altria projects that

dividends will rise by 6.53% between 2022 and 2024, then progressively decline to 6.13% and

rise to 6.78%, respectively. Reviewing and calculating MO's consistent growth rates might be

useful in assessing MO's present and potential future positions.

Part 2: Preliminary Valuation

It's useful to compute MO's constant growth stock price formula. P is the current price, D

is the most recent dividend received, g is the predicted growth rate, and r is the needed rate of

return in the constant growth equation.

Constant Growth Formula: P=D/(r-g)

FINANCIAL ANALYSIS 3

MO is seen as a firm with a significant capitalization. As a result, I will compute the

stock price (r) using a 10% discount rate. 5.5% (g) is MO's low-end dividend growth rate. The

latest annual dividend per share (D) is $3.52. When p = price, the equation with the given data

computes a stock price of $61.01 per share for MO. Consequently, the computation looks like

this:

Low-End Growth Rate

For the high-end dividend growth rate, MO's dividend growth rate is 8.5% (g). The share

price (D) of the most recent annual dividend is $3.52. Given MO's substantial capitalization, the

discount rate will remain at 10.0% (r). Based on this information, the estimated stock price of

MO is $434.13 per share. Below are the calculations:

High-End Growth Rate

As of May 23, 2022, the closing stock price for Altria is $52.12.The top and low-end

value estimates, as determined by the continuous growth method, are greater than the going rate

for MO on the market. A stock is deemed overvalued if the predicted stock price is less than the

current market price. MO stock is therefore undervalued when the estimated stock price is higher

than the present market price.

Both forecasts exceed the current market price, according to my computations of the low-

and high-end growth formulas and the current price. For the previous eight years, MO has

steadily increased dividends while seeing varying annual growth rates (Helfert, 2023). Based on

the current market price of $52.12 and my estimated value of $56.98 using the low-end growth

rate methodology, MO is now undervalued.

FINANCIAL ANALYSIS 4

Part 3: Dividend Analysis and Preliminary Valuation

MO's profitability exceeded that of its rivals. Compared to the industry average, MO's

ROA is higher. 17.49% of the company's equity was given back to investors. The industry ROE

average was 0.06%. It suggests that compared to other market participants, MO was more adept

at paying investors back. Additionally, MO disclosed a little greater gross profit margin than the

industry standard. When compared to its rivals, MO's year was more profitable. In contrast to the

other market participants, MO's liquidity position is, nevertheless, somewhat poor. The quick

and current ratios are both marginally below the median for the industry.

Regarding the long-term debt-to-equity ratio, we cannot say. MO's total debt-to-equity

ratio is 0.38, which is less than the 0.48 industry average. Because eBay Incorporation's ratio was

1.21, the industry average was greater. The interest coverage offered by MO surpasses the

industry standard. Bark Inc., Duluth Holdings Inc., Stitch Fix Inc., and Wayfair Inc. might not

have had an interest coverage ratio, which would account for the lower industry ratio. Compared

to the industry average, MO's asset turnover is lower. In comparison to other players, MO also

had a reduced inventory turnover rate (6). Compared to the industry average of 17.12 times, it

could only turn its inventory 9.0 times.

MO's performance is above average when compared to the industry. With the exception

of the long-term debt-to-equity ratio, it is strong in six of the ten ratios. MO was better at paying

back its investors, produced larger returns on assets, and had a more profitable year overall. On

the other hand, the company's asset management was less effective and its liquidity situation was

rather weak. Compared to other market participants, it possessed fewer liquid assets to cover its

immediate liabilities. It did not make the best use of its resources. Because of its excellent debt

management in comparison to the industry, MO is guaranteed to be able to pay off its debts with

FINANCIAL ANALYSIS 5

ease. All things considered, MO had strong financial results and above-average industry

performance.

FINANCIAL ANALYSIS 6

Reference

Helfert, E. A. (2023). Techniques of financial analysis: A guide to value creation. McGraw-Hill

Professional Publishing.

Weaver, S. C. (2022). The essentials of financial analysis. McGraw Hill Professional.

Peterson, P. P., Fabozzi, F. J., & Habegger, W. D. (2020). Financial management and analysis

workbook: Step-by-step exercises and tests to help you master financial management and

analysis. John Wiley & Sons.