Finacial Management 3
Schoolwork
FinancialManagement.docxFinancial Management
a. In your own words, please identify two different stock exchanges in the United States. Describe the similarities and differences between the two stock exchanges. Identify one stock from each of the two stock exchanges.
There are approximately 13 stock exchanges registered and operating in united states. The two main ones are NYSE and NASDAQ. The major difference between them is that while in NYSE, brokers physically trade the stock in the floor, NASDAQ trade electronically through a connection in the communication network. The similarity is that both must maintain a minimum stock price of $4. Based on the market type, NYSE is considered as an auction market while NASDAQ is seen as a dealer market. Also, NYSE has only one designated market maker who ensures that there is orderly and fairness in the stock market whereas NASDAQ has more than one market with every stock having an average of 14 marker to improve liquidity and efficiency in the trading. Walmart Inc. (WMT) and Apple Inc. (AAPL) are examples of companies which trade in NYSE and NASDAQ respectively (Yahoo Finance, 2018).
b. Using the two stocks you identified, determine the free cash flow from 2013 & 2014. What inference can you draw from the companies’ free cash flow?
Walmart Inc.
Free cash flow = Cash Flow from Operating Activities – Capital Expenditures
Cash Flow from Operating Activities: 2013 = $25,591M
2014 = $23,257M
Capital Expenditure:2013 = $12,898M
2014 = $13,115M
Therefore,
Free Cash Flows: 2013 = $25,591M - $12,257M
= $13,334M
2014 = $23,257M - $13,115M
= $10,142M
Apple Inc.
Free cash flow = Cash Flow from Operating Activities – Capital Expenditures
Cash Flow from Operating Activities: 2013 = $53,666M
2014 = $59,713M
Capital Expenditure: 2013 = $9,076M
2014 = $9,813M
Hence,
Free Cash Flows: 2013 = $53,666M - $9,076M
= $44,590M
2014 = $59,713M - $9,813M
= $49,900M
Based on the free cash flows, Walmart Inc.’s free cash flow dropped in 2014 by more than $3,000M as compared to 2013. On the other hand, Apple Inc.’s free cash flow improved in 2014 by more than $5,000M as compared to 2013. Also, Apple Inc. has more than three times the free cash flow for Walmart in 2013 whereas in 2014, it is more by almost five times. Therefore, Apple Inc. generally has more free cash flow than Walmart Inc.
c. Using the 2016 & 2017 financial statements for both stocks, prepare two financial ratios for each of the following categories: liquidity ratios, asset management ratios, and profitability ratios. You should have a total of six ratios for each stock, per year. What challenges, strengths, or weaknesses do you see? Please be articulate .
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APPLE INC. FINANCIAL RATIOS |
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2017 |
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2016 |
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Amounts (m) |
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Amounts (m) |
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Liquidity Ratios |
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Current Ratio |
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Current Assets |
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$ 128,645 |
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1.28 |
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$106,869 |
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1.35 |
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Current Liabilities |
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$ 100,814 |
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$79,006 |
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Quick Ratio, or |
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Quick Assets * |
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$123,790 |
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1.23 |
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$104,737 |
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1.33 |
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"Acid Test" |
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Current Liabilities |
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$100,814 |
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$ 79,006 |
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Asset Management Ratios |
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Inventory |
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COG |
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$ 141,048 |
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40.37 |
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$131,376 |
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58.64 |
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Turnover |
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Inventory* |
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$ 3,493.50 |
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$ 2,240.50 |
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Accts Receivable |
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Sales |
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$229,234 |
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13.63 |
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$ 215,639 |
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13.23 |
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Turnover |
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Accts Receivable* |
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$16,814 |
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$ 16,301.50 |
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Profitability Ratios |
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Net Profit |
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Net Income |
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$ 48,351 |
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21.09% |
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$ 45,687 |
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21.19% |
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Margin (%) |
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Sales |
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$229,234 |
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$215,639 |
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Gross |
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Gross Profit |
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$ 88,186 |
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38.47% |
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$ 84,263 |
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39.08% |
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Profit (%) |
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Sales |
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$229,234 |
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$215,639 |
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Source:https://www.sec.gov
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WALMART INC. FINANCIAL RATIOS |
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2017 |
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2016 |
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Amounts (m) |
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Amounts (m) |
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Answer |
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Liquidity Ratios |
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Current Ratio |
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Current Assets |
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$ 57,669 |
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0.86 |
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$ 60,239 |
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0.93 |
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Current Liabilities |
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$66,928 |
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$ 64,619 |
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Quick Ratio, or |
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Quick Assets * |
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$12,702 |
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0.19 |
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$ 14,329 |
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0.22 |
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"Acid Test" |
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CurrentLiabilities |
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$66,928 |
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$ 64,619 |
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Asset Management Ratios |
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Inventory |
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COG |
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$361,256 |
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8.26 |
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$ 360,984 |
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8.06 |
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Turnover |
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Inventory* |
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$43,757.50 |
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$ 44,805 |
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Accts Receivable |
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Sales |
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$ 485,873 |
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84.80 |
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$482,130 |
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77.75 |
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Turnover |
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Accts Receivable* |
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$ 5,729.50 |
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$ 6,201 |
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Profitability Ratios |
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Net Profit |
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Net Income |
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$13,643 |
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2.81% |
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$14,694 |
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3.05% |
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Margin (%) |
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Sales |
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$485,873 |
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$ 482,130 |
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Gross |
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Gross Profit |
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$ 124,617 |
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25.65% |
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$121,146 |
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25.13% |
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Profit (%) |
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Sales |
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$ 485,873 |
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$ 482,130 |
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Source: https://www.sec.gov
Analysis
From the ratios, Apple Company has all its ratios very strong. The liquidity ratios as indicated by the current and quick ratios are above the short-term obligations the company has. The company manages its assets very well because the inventory is turned over by 40 and 59 times per year. The accounts receivables are collected in the shortest time, i.e. 13 times in a year which is approximately within a month. Looking at the profitability of the company, it has a remarkable profitapproximately 20% of the net sales (Apple Inc. Company, 2017). The company is operating well and has not weaknesses nor challenges.
For the case of Walmart Inc., it seems to be having several challenges and weaknesses. The liquidity ratio is almost zero, implying that the company may run bankruptcy if the short-term obligations are paid out. The inventory turnover is very low whereas the accounts receivables looks good. The inventory of the company seems to be outdated because they take too long to be sold out. The company’s profitability is very low with a net profit margin of approximately 3% whereas the gross profit is around 25%, it implies that the company has more expenses and needs to be managed (Walmart Corporation, 2017). Any slight decrease in sales will result in net loss because the net profit margin is close to zero.
Therefore, Apple Inc. seems to be performing better than Walmart Inc. almost in all aspects. I think it is evident that companies with their stock in NASDAQ as in the case of Apple Inc. are doing better than their counterparts in NYSE represented by Walmart Inc.
References Apple Inc. Company. (2017). Apple In. Company Form 10K Fillings.Retrieved on October 19, 2018 from https://www.sec.gov/cgi-bin/viewer?action=view&cik=320193&accession_number=0000320193-17-000070&xbrl_type=v# Walmart Corporation. (2017). Walmart Corporation 2017 Annual Report.Retrieved on October 19, 2018 from https://www.sec.gov/cgi-bin/viewer?action=view&cik=104169&accession_number=0000104169-16-000079&xbrl_type=v Yahoo Finance. (2018). Yahoo Finance. Retrieved on October 19, 2018 fromhttps://finance.yahoo.com/quote/WMT/financials?p=WMT
