Week 7 Assignment

Stocks

Sherri Coleman

FIN 534: Financial Management

Strayer University

Dr. Black

July 15, 2022:

Stocks

Stock exchanges are majorly involved in trading financial instruments such as securities, derivatives, and commodities (Dogru et al., 2020). In the U.S., there are two major financial securities markets, which are New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation System (NASDAQ). NYSE is, undoubtedly, the largest stock exchange in the world. It provides entrepreneurs and icons with the opportunity of raising capital. NASDAQ, on the other hand, is the biggest electronic screen-based market and is popularly known for its relatively modern and computerized system. Additionally, it provides lower listing fees compared to NYSE, which explains why giant companies such as Microsoft, Amazon, Google, and Apple trade with NASDAQ.

According to Dogru et al. (2020), free cash flow helps businesses in measuring and monitoring their present value towards tracking growth, encouraging expansion, and avoiding failure. This implies that free cash flow is the amount of money remaining after a business pays for such expenditures as rent, plant, fixed assets, employees, expenses, and debts, among others (Dogru et al., 2020). Therefore, free cash flow is utilized in expanding operations, contributing to additional employees, or facilitating the acquisition of additional assets. The growth in free cash flow as a result of debt elimination, dividend distributions, share buybacks, cost reductions, efficiency improvements or revenue growth contributes to a positive company growth.

One of the companies listed in NYSE is ExxonMobil while Apple Inc. is listed in NASDAQ. In 2019, ExxonMobil’s free cash flow for the year was $5.355 billion, which was a remarkable 67.43 percent decline from 2018. The company recorded a free cash flow of $ $-2.614 billion in 2020, representing an unimpressive 148.81 percent increase from 2019 (Macrotrends, 2022). On the other hand, Apple Inc. had an annual free cash flow of $58.896 billion in 2019, a decline of 8.15 percent recorded in 2018. However, the decline was reverted in 2020 as the company witnessed a jump in its free cash flow of $73.365 billion, representing a 24.57 increase from 2019 (Macrotrends, 2022).

An analysis above, it is clear that Apple recorded a magnificent increase in its free cash flows from 2019 to 2020. Therefore, the inference is that the company had the cash that may be utilized towards expanding, developing new products and services, buying back stock, paying dividends, or reducing their debt. The increase in free cash flow for Apple is an indication of a healthy financial position in the prevailing environment. Thanks to the rise in free cash flow, the implication is that the companies have a strong foundation to their stock pricing in the future. The decline in free cash flow for ExxonMobil is a serious concern for the company. To address the issue, the company may need to restructure its debts to lower interest rates as well as optimizing repayment schedules. The company should also seek to reduce, limit, or delay capital expenditures.

Financial Ratios for Apple (Al Mheiri, Al Hosani & Saif, 2021).

Liquidity Rations

1. Current Ratio (2019) = Current Assets/Current Liabilities

= $163.23 billion/$102.16 billion

= 1.60

1. Current Ratio (2020) = $154.11 billion/$132.51 billion

= 1.16

1. Quick Ratio (2019) = (Current Assets – Inventory)/Current Liabilities

= $159.13 billion/$102.16 billion

= 1.56

1. Quick Ratio (2020) = $149.13 billion/$132.51 billion

= 1.56

Asset Management Rations

1. Inventory Turnover Ratio (2019) = Cost of goods sold/Average inventory

= $161.78 billion/$4.11 billion

= 39.4

1. Inventory Turnover Ratio (2020) = $169.56 billion/$4.06 billion

= 41.75

1. Accounts Receivable Turnover Ratio (2019) = Net sales/Average accounts receivables

= $260.17 billion/$22.93 billion

= 11.35

1. Accounts Receivable Turnover Ratio (2019) = $274.52 billion/$16.12 billion

= 17.03

Profitability Ratios

1. Operating Profit Margin (2019) = Operating Income/Net Sales*100

= $63.93 billion/$260.17 billion*100

= 24.57%

1. Operating Profit Margin (2020) = $66.29 billion/$274.52 billion*100

= 24.15%

1. Net Profit Margin (2019) = Net Income/Net Sales*100

= $55.26 billion/$260.17 billion*100

= 21.24%

1. Net Profit Margin (2020) = $57.41 billion/$274.52 billion*100

= 20.91%

Financial Ratios for ExxonMobil (Asadbayli, 2020).

Liquidity Rations

1. Current Ratio (2019) = Current Assets/Current Liabilities

= $50.05 billion/$63.99 billion

= 0.78

1. Current Ratio (2020) = $44.89 billion/$56.36 billion

= 0.80

1. Quick Ratio (2019) = (Current Assets – Inventory)/Current Liabilities

= $31.52/$63.99 billion

= 0.49

1. Quick Ratio (2020) = $26.04 billion/$56.36 billion

= 0.46

Asset Management Rations

1. Inventory Turnover Ratio (2019) = Cost of goods sold/Average inventory

= $211.15 billion/$18.75 billion

= 11.26

1. Inventory Turnover Ratio (2020) = $150.56 billion/$18.69 billion

= 8.03

1. Total Asset Turnover (2019) = Sales/Total Assets

= $264.93 billion/$362.60 billion

= 0.73

1. Total Asset Turnover (2020) = $181.50 billion/$332.75 billion

= 0.55

Profitability Ratios

1. Operating Profit Margin (2019) = Operating Income/Net Sales*100

= $20.06 billion/$53.79 billion*100

= 37%

1. Operating Profit Margin (2020) = $28.88 billion/$30.94 billion*100

= 93%

1. Net Profit Margin (2019) = Net Income/Net Sales*100

= $14.34 billion/$53.79 billion*100

= 26.66%

1. Net Profit Margin (2020) = $22.44 billion/$30.94 billion*100

= 72.52%

In examining the financial ratios for Apple and ExxonMobil, one of the key strengths is that the values obtained may go a long way in comparing different companies. This is important as it helps investors in evaluating stocks within a given industry.

References

Al Mheiri, R., Al Hosani, N., & Saif, E. (2021). Ratio Analysis of Apple. Available at SSRN 3895231. https://dx.doi.org/10.2139/ssrn.3895231

Asadbayli, Y. (2020). Financial Ratio Analysis as a Tool of Evaluating the Performance of Companies for Investment Decision: The Case of ExxonMobil and Chevron (Doctoral dissertation, szte). http://diploma.bibl.u-szeged.hu/id/eprint/108291

Dogru, T., Kizildag, M., Ozdemir, O., & Erdogan, A. (2020). Acquisitions and shareholders' return in restaurant firms: The effects of free cash flow, growth opportunities, and franchising. International Journal of Hospitality Management, 84, 102327. https://doi.org/10.1016/j.ijhm.2019.102327

Macrotrends (2022). Apple financial statements 2010-2022. Retrieved from https://www.macrotrends.net/stocks/charts/AAPL/apple/

Macrotrends (2022). ExxonMobil financial statements 2010-2022. Retrieved from https://www.macrotrends.net/stocks/charts/AAPL/ExxonMobil/