fin599

Particulars

NASDAQ

NYSE

Market Type

Dealers Based Securities Market where dealers sell stocks directly to the buyers through the internet or telephone

It is an auction style securities market where brokers purchase stock on behalf of clients or firms

Trading Location

Trading takes place electronically through the internet

Purchase and trading of securities takes place in person on the floor of the exchange

Requirements for Listing

Alternative to the NYSE where companies too small to meet stringent NYSE qualifications for listing can publicly trade their stock

Listed Companies must have at last 2200 shareholders, traded 100,000 shares monthly and have a market capitalization of $100 million and $75 million in revenues annually

Types of Stocks Traded

Primarily stocks of global technological companies, volatile stocks and growth stocks, making it a predictor of trends in the technological market as a result of the large number of technological companies listed

Stocks of well established companies with high turnovers

Traffic Controller

This is the person responsible for handling specific arising issues of the exchange known as the market maker

The person is known as the Specialist.

Entry Fee for Listing

$50,000-$70,000

Upto $250,000

Yearly Listing Fee

$27,500

$500,000

Examples

21 Century Fox (FOXA)

Abercrombie & Fitch (ANF)

Free Cash Flow

2013

USD 2.38 Billion

USD 48.75 million

2014

USD 2.29 Billion

USD 263.044 Million

Inferences

Free Cash flow is the amount of money after all expenses have been deducted that is available for distribution to security shareholders. It is used to pay dividends, make acquisitions, invest in new property, pay interest and reduce debt. It is the best indicator of a company’s ability to generate cash. Both companies have cash flow well into the millions thus indicating that they are good revenue generators and are able to pay their shareholders good dividends. Thus they are profitable companies to invest in.

Financial Ratios

FOXA (MorningStar, 2017)

ANF (MorningStar, 2017)

2013

2014

2013

2014

Liquidity Ratios

Quick Ratio

1.44

1.34

1.08

1.18

Current Ratio

1.85

1.74

1.89

2.32

Asset Management Ratios

Fixed Assets Turnover

6.40

11.06

3.60

3.38

Total Assets Turnover

0.51

0.60

1.49

1.41

Profitability Ratios

Net Profit Margin (%)

25.64

14.17

1.33

1.38

Return on equity (%)

34.05

26.23

3.08

3.32

Strengths

21 Century Fox

Abercrombie & Fitch

1. Based on the asset management ratio, the company management is fairly effective in using their resources in order to generate revenue. However, they are much more efficient in generating revenue from their fixed assets as opposed to their total assets

2. High net profit margins indicate that the company is highly profitable

3. Both liquidity ratios are well above zero, with a high quick ratio indicating that the company is a good debt candidate since it quick ratio indicates that it is extremely solvent

4. High return on equity indicated that this is a profitable company to invest in with a high expected Return-on-Investment

1. Based on the asset management ratio, the company management strategy is effective in using all available resources in order to generate revenue. Therefore, one can surmise that the management is effective

2. Net profit margins indicate that the company is able to generate profit

3. Since both current and quick ratios are above zero, and the quick ratio is high, the company is able to meet its current liabilities, indicating that it is solvent

Weaknesses

1. Total asset turnover is low compared to the fixed assets turnover, indicating that the variable costs of the company are high, therefore the management should come up with a strategy to overcome this challenge

1. Profitability ratio is low, indicating that the company is operating slightly above breakeven, therefore it is a speculative investment as opposed to a sure bet. This results into a volatile stock price in the market as a result of uncertainty

Challenges

1. Poor total asset management reducing total overall Net Profit Margins. This can be improved by a better Policy on variable costs accrued in the generation of revenue

1. Profitability margin is low at 1%. Therefore, in order to increase investor confidence, ANF needs to increase net profit margin by increasing revenue and reducing costs in order to bolster investor confidence and reduce share price volatility.