FIN 534 Homework Set 1

Homework Set #1: Chapters 1, 2, & 3

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

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 numerous stock exchanges in existence, however, two of the more well-known stock exchanges in the United States are NYSE and NASDAQ. Some similarities between the two stock exchanges are the fact that a company must first be publicly traded and registered with the SEC. Some of the differences between the two are the fact that the listing on the NYSE have bigger market values while NASDAQ has a greater number of listings. One difference between the two that isn’t much of a difference anymore is the fact that NYSE trading was done face-to-face while NASDAQ trading was done with a computerized system. Now, both NYSE and NASDAQ trading is done electronically in some manner.

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?

FCF = NOPAT – additional investment in operational capital

NOPAT = EBIT (1-tax rate)

Apple 2013: NOPAT = 50,155,000 (1-.35) = 32,600,750

FCF = 32,600,750 – 15,305,000 = 17,295,750

Apple 2014: NOPAT = 53,483,000 (1-.35) = 34,763,950

FCF = 34,763,950 – 18,034,000 = 16,729,950

Samsung 2013: NOPAT = 36,353,908 (1-.35) = 23,630,040

FCF = 23,630,040 – 1,529,468 = 22,100,572

Samsung 2014: NOPAT = 26,479,560 (1-.35) = 17,211,714

FCF = 17,211,714 – 2,146,611 = 15,065,103

An inference that can be drawn from the companies’ free cash flows are that they both have a good amount of free cash flow, however Apple’s FCF is more stable indicating that whatever Apple is doing with its money is working for them by keeping them relatively even keel from year to year instead of increasing or decreasing a significant amount like Samsung.

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.

 Apple 
 20162017
Current Ratio106,869/79,006 = 1.35128,645/100,814 = 1.28
Quick Ratio(106,869-2,132)/79006 = 1.33(128,645-4,855)/100,814 = 1.23
Fixed Assets Turnover Ratio215,639/214,817 = 1.00229,234/246,674 = 0.93
Total Assets Turnover Ratio215,639/321,686 = 0.67229,234/375,319 = 0.61
Operating Profit Margin61,372/215,639 = 28%64,089/229,234 = 28%
Basic Earning Power61,372/321,686 = 19%64,089/375,319 = 17%
 Samsung 
 20162017
Current Ratio125,040/48,365 = 2.59129,949/59,390 = 2.19
Quick Ratio(125,040-16,227)/48,365 = 2.25(129,949-22,088)/59,390 = 1.82
Fixed Assets Turnover Ratio178,473/106,752 = 1.67211,812/136,834 = 1.55
Total Assets Turnover Ratio178,473/231,792 = 0.77211,812/266,783 = 0.79
Operating Profit Margin27,154/178,473 = 15%49,683/211,812 = 23%
Basic Earning Power27,154/231,792 = 12%49,683/266,783 = 19%

Based on the liquidity ratios for both Samsung and Apple, they indicate that the two companies should have no issues satisfying their short-term obligations in paying their liabilities. Based on the fixed assets turnover ratio, Samsung uses their plant and equipment more efficiently than apple for the past two years.

https://s22.q4cdn.com/396847794/files/doc_financials/annual_reports/2015_Form_10-K_As-filed_.pdf

https://s22.q4cdn.com/396847794/files/doc_financials/annual_reports/_10-K_2017_As-Filed_.pdf

https://images.samsung.com/is/content/samsung/p5/global/ir/docs/2014_con_quarter04_soi.pdf

https://images.samsung.com/is/content/samsung/p5/global/ir/docs/2014_con_quarter04_cf.pdf

https://images.samsung.com/is/content/samsung/p5/global/ir/docs/2017_con_quarter04_bs.pdf

https://images.samsung.com/is/content/samsung/p5/global/ir/docs/2017_con_quarter04_soi.pdf