Homework set # 3 (FIN534)

Homework Set # 1

Title: Solution Set #1: Chapters 1, 2, & 3

Name:

Institute

Date:

Assignment:

Directions: Answer the following questions on a separate document. Explain how you reached the answer, or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link above.

Question 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.

Question 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?

Question 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.

Solution

Answer A: The stock exchange in the US are National Association of securities Dealers Automated Quotation System and New York Stock Exchange (NYSE). Both there are one of the world biggest stock exchanges.

NYSE is a stock exchange based in New York, founded in 1792 and located on Wall Street and NASDAQ, founded in 1971.NASDAQ is the largest electronic screen-based market.

Stocks can be listed on exchange after meeting the listing criteria. But, in general companies tend to be listed on the NASDAQ. Still the NYSE is the largest and powerful stock exchange in the world. The NASDAQ has more companies listed but NYSE has more market capitalization.

1. Stock listed in NYSE - Ford Motor Co.

2. Stock listed in NASDAQ - Apple (AAPL)

Answer B. Free cash flow is the amount of cash generated by a business that is available for distribution among its security holders that is debt holder, equity holder, preferred stock holders, and convertible security holders and used to pay dividend, make acquisitions etc.

Free Cash Flow of Ford Motor Co. for the year 2013 is $3.85B and year 2014 is $7.04B

It indicate that company is generating enough cash and has ability to generate more cash.

Free Cash Flow of Apple (AAPL) for year 2013 is $45.5B and year 2014 is $50.14B

As Apple (AAPL) shows increase in free cash flow which is good indication from investors point, as company has ability to generate more cash.

Answer C: Financial Ratios of Apple (AAPL) for recent years:

Period Ending	2017	2016
Liquidity Ratios:
Current Ratio	128%	135%
Quick Ratio	123%	133%
Cash Ratio	74%	85%
Profitability Ratios:
Gross Margin	38%	39%
Operating Margin	27%	28%
Profit Margin	21%	21%

Financial Ratios of Ford Motors for recent years:

Period ending	31-Dec-16	31-Dec-15
Current Ratio	120%	125%
Quick Ratio	107%	111%
Cash Ratio	94%	98%
Gross Profit Margin	10.57%	11.76%

Apple (AAPL):

Strengths:

1. Its Brand name

2. Product development: its product set high standards for the market.

Weaknesses:

1. It refuses to pay dividend even have a huge cash flow.

2. Won't open operating system to outsiders to develop hardware to work with the products, keeping hardware sales to itself.

Ford Motors Co.

Strength:

1. Strong Brand image

2. Global supply chain

3. Effective innovation processes

Weaknesses:

1. Limited global scope of production network

2. Higher costs compared to competitors

3. Slow innovation processes

Challenges:

1. New entry of high-tech firms

2. competitive rivalry