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Finish the part 3 and 4 combain with part 1 &2. Separate the part 3 and part 4. The Part 4 needs 9 pages. Part 3 needs about 1000 words ( 3 pages).

Running head: VALUATION OF PORTFOLIO AND COMPANIES 1

VALUATION OF PORTFOLIO AND COMPANIES 2

Valuation of Portfolio and Companies


Valuation of Portfolio and Companies

Valuation

The dividend growth model (DDM) calculates the value of any business. It takes into account the dividends per share (DPS), rate of return, and the growth rate. One finds the growth rate by computing the difference between the dividends paid in the years 2018 and 2019. Using a rate of return of 8% gives various stock values. AT&T had an intrinsic value of 34, Apple Inc. had 122, and Kellogg had 37, Exxon 183, whereas Bristol-Myers had 30 dollars. One notes that AT&T had a market price per share (MPS) of 30.08; Apple had 364, Kellogg 66, Exxon 44, and Bristol 59 dollars. Such results show that only AT&T and Exxon Mobil are undervalued. An investor purchasing these companies is likely to take advantage of capital gains.

 

AT&T

APPLE INC

KELLOGG

Exxon Mobil

Bristol-Myers Squibb

Dividends

2.04

3.08

2.28

3.48

1.64

Rate

8%

8%

8%

8%

8%

Growth

2.00%

5.48%

1.79%

6.10%

2.50%

Value

34

122

37

183

30

(Apple Inc. (AAPL) Stock Historical Prices & Data, n.d.; AT&T Inc. (T) Stock Historical Prices & Data, n.d.; Exxon Mobil Corporation, n.d., and Kellogg Company, n.d.)

Rate of return of 12%

Changing the rate of return varies the intrinsic values of the shares. One notes that AT&T has a value of 20.4, Apple 47, Kellogg 22, and Exxon Mobil 59 while Bristol has a value of 17 dollars. Such results show that all the stocks are overvalued. A prudent investor would not purchase any of the shares from these companies.

AT&T

APPLE INC

KELLOGG

Exxon Mobil

Bristol-Myers Squibb

Dividends

2.04

3.08

2.28

3.48

1.64

Rate

12%

12%

12%

12%

12%

Growth

2.00%

5.48%

1.79%

6.10%

2.50%

Value

20.4

47

22

59

17

Market Price per Share

 

AT&T

APPLE INC

KELLOGG

Exxon Mobil

Bristol-Myers Squibb

MPS

30.08

364

66

44

59

Capital Asset Pricing Model (CAPM)

CAPM is a technique used to find the required rate of return. It takes into account the risk-free rate, the beta value, the market rate, and the risk premium (Capital Asset Pricing Model, 2015). Rate of return is obtained as the sum of the risk-free rate and the product of beta and the risk premiums.

CAPM Returns

 

 

 

COMPANY

WEIGHT

ED BETA

PORTFOLIO BETA

Market return

Risk-free rate

Rate of return

AT&T

0.40

0.67

0.27

8%

0.66%

2.63%

Bristol-Myers Squibb

0.20

0.72

0.14

8%

0.66%

1.72%

Apple, Inc.

0.07

1.17

0.08

8%

0.66%

1.23%

Exxon Mobil Corp.

0.13

1.36

0.18

8%

0.66%

1.99%

Kellogg Co.

0.20

0.59

0.12

8%

0.66%

1.53%

Total Portfolio Beta

 

 

0.79

8%

0.66%

6.45%

APPLE INC

Turnover ratios measure the way a company uses its assets to generate sales. The inventory turnover, the of inventory, account receivable turnover, and the of receivables fall in this category. One notes that Apple Inc. had an inventory turnover of 41.39 in 2018 and 39.40 in 2019. Such answers result in inventory being sold in nine . It also had an account receivable turnover of 11.45 in 2018 and 11.35 in 2019, whereas of receivables were 31 in 2018 and 32 in 2019. Liquidity ratios evaluate the ability of a business to meet its short term obligations. Apple Inc. had a current ratio of 1.13 in 2018 and 1.54 in 2019. It also had a quick ratio of 1.10 in 2018 and 1.50 in 2019. These results show that the business is quite liquid and can pay its current liability.

Inventory Turnover

2019

2018

Current ratio

2019

2018

COGS

161,782

163,756

Current assets

162,819

131,339

Inventory

4,106

3,956

Current liability

105,718

115,929

Inventory Turnover

39.40

41.39

Ratio

1.54

1.13

of inventory

 

 

Quick ratio

 

 

360

360

Current assets

158,713

127,383

Inventory turnover

39.40136

41.39434

Current liability

105,718

115,929

of inventory

9

9

Ratio

1.50

1.10

Accounts receivable Turnover

2019

2018

Sales

260,174

265,595

Account receivable

22,926

23,186

Turnover

11.35

11.45

of receivables

 

 

360

360

receivable turnover

11.35

11.45

of receivables

32

31

(SEC Filings, n.d.).

Leverage and profitability ratios

Leverage gauges the level of borrowings in a business. They include both the debt to equity and debt to assets ratio. Apple Inc. had a debt to equity rate of 0.96 in 2018 and 1.13 in 2019. It also had a debt to assets ratio of 0.28 and .30 in the same period. Such results show that the business is keen on taking on more borrowings. Such a move makes the company quite risky. Besides, one may evaluate the profitability ratios. The firm had a return on equity (ROE) of 0.56 in 2018 and 0.61 in 2019. It also had a net margin of 22% and 21% in the same period. Such results show that the company is quite profitable.

Debt to equity

 

 

Return on equity

2019

2018

Debt

102,067

102,519

Net income

55,256

59,531

Equity

90,488

107,147

Equity

90,488

107,147

Debt to equity ratio

1.13

0.96

ROE

0.61

0.56

Debt to total assets

 

 

Net profit margin

 

 

Debt

102,067

102519

Net profit

55,256

59531

Total assets

338,516

365,725

Sales

260,174

265,595

Ratio

0.30

0.28

Ratio

0.21

0.22

(SEC Filings, n.d.).

AT&T

Both the turnover and current ratios should be evaluated. One notes that AT&T had an inventory turnover of 2.63 in 2018 and2.71 in 2019. Such answers result in inventory being sold in 137 and 133 in 2018 and 2019, respectively. It also had an account receivable turnover of 6.45 in 2018 and 8.00 in 2019, and of receivables were 56 in 2018 and 45 in 2019. Liquidity ratios evaluate the ability of a business to meet its short term obligations. Apple Inc. had a current ratio of 0.80 in 2018 and 0.79 in 2019. It also had a quick ratio of 0.52 in 2018 and 0.53 in 2019. AT&T is quite illiquid and may have difficulties in meeting its short term obligations.

Inventory Turnover

2019

2018

Current ratio

2019

2018

COGS

49,785

46,513

Current assets

54,761

51,427

Inventory

18,364

17,704

Current liability

68,911

64,420

Inventory Turnover

2.71

2.63

Ratio

0.79

0.80

of inventory

 

 

Quick ratio

 

 

360

360

Current assets

36,397

33,723

Inventory turnover

2.711011

2.627259

Current liability

68,911

64,420

of inventory

133

137

Ratio

0.53

0.52

Accounts receivable Turnover

2019

2018

Sales

181,193

170,756

Account receivable

22,636

26,472

Turnover

8.00

6.45

of receivable

 

 

360

360

Inventory turnover

8.00

6.45

of receivable

45

56

(SEC Filings, n.d.).

Leverage and liquidity

AT&T shareholders would be keen on establishing the levels of borrowed funds and the returns generated by a business. The company had a debt to equity of 0.05 in 2018 and 0.06 in 2019. It also had a debt to total assets of 0.02 in both years. Besides, it had an ROE of 10% in 2018 and 7% in 2019. It had a net margin of 11% and 8% in both years. One notes that the firm has maintained deficient debt levels, whereas the profits have been on a downward trend.

Debt to equity

2019

2018

Return on equity

2019

2018

Debt

11,838

10,255

Net income

13,900

19,370

Equity

201,934

193,884

Equity

201,934

193,884

Debt to equity ratio

0.06

0.05

ROE

0.07

0.10

Debt to total assets

 

 

Net profit margin

 

 

Debt

11,838

10255

Net profit

13,900

19,370

Total assets

551,669

531,864

Sales

181,193

170,756

Ratio

0.02

0.02

Ratio

0.08

0.11

(SEC Filings, n.d.).

EXXON

Exxon had an inventory turnover of 10.17 in 2018 and 9.75 in 2019. It had sold its inventory in 35 and 37 in the same period. One notes that the receivable turnover was 11.75 and 9.82 in the same period. It collected its credit sales in 31 in 2018 and 37 in 2019. Liquidity rates appear attractive to any investor. Exxon had a current ratio of 0.84 in 2018 and 0.78 in 2019. It also had a quick ratio of 0.51 in 2018 and 0.49 in 2019. Such results in liquidity rates below a value of one and indicates that the business may have hard times paying its suppliers and other short term liabilities.

Inventory Turnover

2019

2018

Current ratio

2019

2018

COGS

180,627

192,854

Current assets

50,052

47,973

Inventory

18,528

18,958

Current liability

63,989

57,138

Inventory Turnover

9.75

10.17

Ratio

0.78

0.84

of inventory

 

 

Quick ratio

 

 

360

360

Current assets

31,524

29,015

Inventory turnover

9.748867

10.1727

Current liability

63,989

57,138

of inventory

37

35

Ratio

0.49

0.51

Accounts receivable Turnover

2019

2018

Sales

264,938

290,212

Account receivable

26,966

24,701

Turnover

9.82

11.75

of receivable

 

 

360

360

Inventory turnover

9.82

11.75

of inventory

37

31

(SEC Filings, n.d.).

Debt and profitability

Exxon had a debt to assets of 0.11 in 2018 and 0.13 in 2019. It also had a dent to equity of 0.19 and 0.24 in the same period. These results show business with a relatively low amount of financial obligations. Such companies bear minimal interest costs and expenses. Besides, it is vital to gauge the % of the profitability of the firm. One notes that Exxon had an ROE of 10% in 2018 and 7% in 2019. It also had a net profit of 7% and 5% in the same period.

Debt to equity

2019

2018

Return on equity

2019

2018

Debt

46,920

37,796

Net income

14,340

20,840

Equity

198,938

198,528

Equity

198,938

198,528

Debt to equity ratio

0.24

0.19

ROE

0.07

0.10

Debt to total assets

 

 

Net profit margin

 

 

Debt

46,920

37,796

Net profit

14,340

20,840

Total assets

362,597

346,196

Sales

264,938

290,212

Ratio

0.13

0.11

Ratio

0.05

0.07

(SEC Filings, n.d.).

KELLOG

Efficiency ratios gauge the manner a company utilizes its assets. Kellogg had an inventory turnover of 6.63 and 7.50 in 2018 and 2019, respectively. One notes that the rate has improved, showing that the business is selling its stock at a faster pace. It also had accounts receivable turnover of 9.85 in 2018 and 8.62 in 2019. Besides, the current and quick ratio shows the performance of any business. One notes that the company had a current ratio of 0.70 in 2018 and 0.72 in 2019. It also had a quick ratio of 0.40 in 2018 and 0.46 in 2019. Such results show that the business will have a hard time meeting its short term obligations. An investor may avoid investing in such a company.

Inventory Turnover

2019

2018

Current ratio

2019

2018

COGS

9,197

8,821

Current assets

3,431

3,157

Inventory

1,226

1,330

Current liability

4,778

4,529

Inventory Turnover

7.50

6.63

Ratio

0.72

0.70

of inventory

 

 

Quick ratio

 

 

360

360

Current assets

2,205

1,827

Inventory turnover

7.501631

6.632331

Current liability

4,778

4,529

of inventory

48

54

Ratio

0.46

0.40

Accounts receivable Turnover

2019

2018

Sales

13,578

13,547

Account receivable

1,576

1,375

Turnover

8.62

9.85

of inventory

 

 

360

360

Inventory turnover

8.62

9.85

of inventory

42

37

(SEC Filings, n.d.).

Debt and profitability ratios

Kellog had an ROE of 42% and 29% in 2018 and 2019, respectively. It also had a net margin of 10% in 2018 and 7% in 2019. One notes that there was a decline in the profits from one year to the other. As a result, such stock may not appear attractive to any investor. Besides, it has a debt to equity of 2.65 in 2018 and 2.20 in 2019. It also had a debt to assets of 0.47 in 2018 and 0.42 in 2019. An investor notes that the company has maintained a relatively higher level of debt. This situation makes the firm quite risky.

Debt to equity

2019

2018

Return on equity

2019

2018

Debt

7,302

8,383

Net income

960

1,336

Equity

3,314

3,159

Equity

3,314

3,159

Debt to equity ratio

2.20

2.65

ROE

29%

42%

Debt to total assets

 

 

Net profit margin

 

 

Debt

7,302

8,383

Net profit

960

1,336

Total assets

17,564

17,780

Sales

13,578

13,547

Ratio

0.42

0.47

Ratio

7%

10%

(SEC Filings, n.d.).

BRISTOL

Bristol had an inventory turnover of 1.19 in 2018 and 1.88 in 2019. As a result, it had of inventory of 302 and 191 in the same period. Such results show that the company is replenishing stock at a faster rate. It also had an account receivable turnover of 3.93 in 2018 and 3.40 in 2019. Its credit sales were outstanding for 92 in 2018 and 106 in 2019. Besides, one should evaluate the liquidity ratios. Bristol had a current ratio of 1.66 in 2018 and 1.60 in 2019. It also had a quick ratio of 1.15 in 2018 and 1.37 in 2019. This performance indicates that the firm can meet its short term obligations when they fall due.

Inventory Turnover

2019

2018

Current ratio

2019

2018

COGS

8,078

6,467

Current assets

29,354

17,716

Inventory

4,293

5,427

Current liability

18,304

10,654

Inventory Turnover

1.88

1.19

Ratio

1.60

1.66

of inventory

 

 

Quick ratio

 

 

360

360

Current assets

25,061

12,289

Inventory turnover

1.881668

1.191634

Current liability

18,304

10,654

of inventory

191

302

Ratio

1.37

1.15

Accounts receivable Turnover

2019

2019

Sales

26,145

22,561

Account receivable

7,685

5,747

Turnover

3.40

3.93

of inventory

 

 

360

360

Inventory turnover

3.40

3.93

of inventory

106

92

Leverage and profitability ratios

Bristol had a debt to equity ratio of 0.52 in 2018 and 0.9 in 2019. It also had a debt to assets of 0.21 and 0.36 in