Analyzing Financial Statements - Security Analysis

Docs en anglais | 26 pages | 30-09-2008 | Format : | Note : Non noté |

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Résumé

Through this analysis, we are going to focus on seven main department stores. It is very interesting to study this field of activity as the retail sector is the second-largest industry in the United States of America, if we consider the number of companies and the number of employees. Thus, we can easily understand that they have a real power on the industry, and on the economy of the USA. They also have a real presence on the stock exchange as the financial management of those companies influences the share prices and dividends...

Table of contents:

I) Compute the sustainable growth rate for each firm, g = r x ROE, where r is the firm's retention rate. Since there may be substantial variation in the data from year to year you may wish to find the average retention rate and ROE over the past five years.

II) Compare the growth rates computed above with the P/E ratios of the firms. (It would be useful to plot P/E against g in a scatter diagram. This is easy to do in Excel). Is there a relationship between g and P/E?

III) What is the average PEG ratio (this is the ratio of the P/E ratio to the growth rate, for the firms in your sample? How much variation is there across firms in this industry?

IV) Find the price-to-book, price-to-sales, and price-to-cash flow ratios for each firm.

V) Based on the 5-year historical growth rate of earnings per share for each firm, how is the actual rate of the firm's earnings growth correlated with its sustainable growth rate that you computed in the beginning part of the exercise (calculate the correlation statistic using the built-in statistical function in Excel)?

VI) What factors might affect the future growth rate of earnings? Can you substantiate any major differences across these firms by examining the financial statements of the firms? Which of these factors might be foreseen by investors? Which would be unpredictable?

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