FIN534 assignment 1

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

FIN534 Financial Management

Comparison of two main stock exchange in the US and their

The national association of security dealers and automated quotations abbreviated as NASDAQ and the New York stock exchange abbreviated as NYSE are two main stock exchanges in America. These two accounts for the highest amount of trading in relation to equities in America and globally. While the NYSE still retains its physical trading floor on Wall Street in New York City, most exchanges occur in Mawah, New Jersey, at the NYSE’s data center. The Nasdaq, on the other hand, does not have a physical trading floor at all. At both telecommunications centers, trading takes place directly between investors and their buyers or sellers, who are the market makers (whose role we discuss below in the next section), through an elaborate system of companies electronically connected to one another. They operate in the same level as far as stock market is concerned but differ in terms how they conduct their stock market operations during selling and buying and also in the type of equity they deal with.

Stock Exchange NASQAD NYSE
Founded 1971 1792
Market Type For most of its history, was a dealer’s market where market participants bought and sold through dealers. Recently, with trading technology it has changed, and now buyers and sellers are matched together. An auction market.Individuals are typically buying and selling between one another. The highest bidding price will be matched with the lowest asking price.
Traffic Control Each security on NASDAQ has more than one market maker. Average of 14 market makers for each stock. One Designated Market Maker. Usually stands ready to step in and buy or sell as many shares as needed to ensure a fair and orderly market in that security.
Listing Fees Entry fee is $50,000 to $75,000. Yearly listing fee is about $27,500. Entry fee is up to $500,000 and yearly listing fee is based on number of shares but is capped at $500,000.
Capitalization Home to 3,800 listing with a market capitalization of $11 trillion. Home of 2,400 companies listed that exceed $26 trillion.
Perception More volatile and growth oriented Less volatile
Stock traded Amazon (NASDAQ:AMZN) Exxon Mobil Corp (NYSE:XOM)

A major similarity between the two stocks exchange is that they are both involved in the equity exchange and they attempt to match sellers with buyers or demand with supply. They are both major stock exchange in America and Europe. Companies trading in NASDAQ are less stable as compared with those in NYSE. The only similarities between these two stocks exchange it that they are involved in the transaction of several equities. Major differences between the two stock exchanges; Nasdaq-listed trades are entirely automated. NYSE trades are still overseen by specialists.

Using the two stock you identified, determine the free cash flow from 2013 & 2014. What inference can you draw from the companies’ free cash flow?

The Free Cash Flow Formula is: Free Cash Flow = Operating cash flow – Capital expenditures.

For Exxon Mobil FCF for the fiscal year ending 2013 was:

Cash flow from operating activities = $45.12 billion

Capital expenditures – $32.95 billion

XOM’s FCF = $145.12 – $32.95 = $12.17 billion

For Exxon Mobil FCF for the fiscal year ending 2014 was:

Cash flow from operating activities = $30.34 billion

Capital expenditures – $26.49 billion

XOM’s FCF = $145.12 – $32.95 = $3.85 billion

Comparing the FCF, XOM had a -68.32% growth due to the crash in oil prices and lawsuits that the company had to payout.

For Amazon FCF for the fiscal year ending 2013 was:

Cash flow from operating activities = $6.84 billion

Capital expenditures – $4.89 billion

AMZN’s FCF = $6.84 – $4.89 = $1.95 billion

For Amazon FCF for the fiscal year ending 2014 was:

Cash flow from operating activities = $11.92 billion

Capital expenditures – $4.59 billion

AMZN’s FCF = $11.92 – $4.59 = $7.33 billion

Comparing the FCF, AMZN had a 276.14% growth. Amazon skyrocketed in 2014 with their Amazon prime.

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.

Exxon Mobil Corp

Liquidity Ratios:

Current ratio = Current assets ÷ Current liabilities

2016: 41,416 /47,638 = 0.87

2017: 47,134 / 57,771 = 0.82

Exxon Mobil Corp.’s current ratio slightly deteriorated from 2016 to 2017

Quick ratio = Total quick assets ÷ Current liabilities

2016: (25,051) / 47,638 = .53

2017: (28,774) / 57,771 = .50

Exxon Mobil Corp.’s quick ratio slightly deteriorated from 2016 to 2017.

Cash ratio = Total cash assets ÷ Current liabilities

2016: 3,657 / 47,638 = .08

2017: 3,177 / 57,771 = .05

Exxon Mobil Corp.’s cash ratio deteriorated significantly from 2016 to 2017.

Management Ratios:

Debt to capital = Total debt ÷ Total capital

2016:42,762/ 210,087 = 0.20

2017:42,336 / 230,024 = 0.18

Debt to equity = Total debt ÷ Total ExxonMobil share of equity

2016: 42.76/ 167.33 = .26

2017: 42.34 / 187.69 = .22

Exxon Mobil Corp.’s debt-to-equity ratio improved from 2016 to 2017.

Profitability Ratios:

Operating Profit Margin = EBIT (Earnings Before Interest and Taxes) / Sales

2016: 7,040 / 146,917 = .0479 = 3%

2017: 4,342 / 144,077 = .0301 = 2%

Gross Profit Margin = (Sales – Cost of Goods Sold) / Sales

2016: (226.09– 183.1) / 226.09 = 0.1901 = 19%

2017: (244.36 – 192.45) / 244.36 = 0.2124 = 21%

Amazon

Liquidity Ratios:

Current Ratio = Current Assets / Current Liabilities

2016: 45.78 / 43.82 = 1.05

2017: 68.20/ 57.88 = 1.04

Quick Ratio = (Current Assets – Inventories) / Current Liabilities

2016: 34.32 / 43.82 = 0.78

2017: 44.15 / 57.88 = 0.76

Management Ratios:

Debt Ratio = Total Debt / Total Assets

2016: 7.69/ 83.40 = .3987 = 40%

2017: 24.74/ 131.310 = 0.188 = 51%

Debt-to-Equity Ratio = Total Debt / Total Common Equity

2016: 7.69/ 19.285 = .3987 = 40%

2017: 24.74 / 27.71 = .8929= .89%

Profitability Ratios:

Operating Profit Margin = EBIT (Earnings Before Interest and Taxes) / Sales

2016: 4,376,000/ 135,987,000 = .03 = 3%

2017: 4,654,000/ 177,866,000 = .02 = 2%

Gross Profit Margin = (Sales – Cost of Goods Sold) / Sales

2016: (135,987,000 – 47,722,000) / 135,987,000 = 0.003509 = 35%

2017: (177,866,000 – 111,934,000) / 177,866,00 = 0.370 = 37%

Ratio analysis also provides ways for you to compare the financial state of your business against other businesses within your industry or between your business and businesses in other industries. The sheer numbers of available financial ratios make it important to research and choose ratios most applicable to your business. One of their most important functions lies in their capacity to act as lagging indicators in identifying positive and negative financial trends. 

Reference

Ehrhardt, M. C., & Brigham, E. F. (2016). Corporate finance: A focused approach. Cengage learning.

Investopedia. (2018). The NYSE and Nasdaq: How They Work. Retrieved from https://www.investopedia.com/articles/basics/03/103103.asp

XOM Annual Cash Flow. (2019). Annual Financials for Exxon Mobil Corp. Retrieved from https://www.marketwatch.com/investing/stock/XOM/financials/cash-flow

AMZN Annual Cash Flow. (2019). Annual Financials for Amazon. Retrieved from https://www.marketwatch.com/investing/stock/AMZN/financials/cash-flow

Lohrey, Jackie. (2018). Importance of Ratio Analysis in Financial Planning. Retrieved from https://smallbusiness.chron.com/importance-ratio-analysis-financial-planning-80600.html